Project 2

Part 1 & 2 Percentage Amount (Year 1)

Total Revenue(TR) 100% 900526

Direct Costs:
Food and Beverages 36.70% 330493
Wages 30.20% 271959
Total Direct Cost 66.90% 602452
Gross Profit 33.100% 298074
Indirect Cost:
Rent 3.65% 32890
Utilities 2.50% 22513
Marketing 2.80% 25215
Admin. (Manager Salary) 10% 87360
Other Costs 1.50% 13508
Total Indirect Cost 20.15% 181486
Gross Operating Profit 12.95% $ 116,588

Part 4
Total Investment Cost (TIC) or I = FC + NWC

Fixed Capital (FC):

Fixed Invetment
Rennovation and Design 188,500
Kitchen Area 57,000
Dinning Area 2,500
POS harware and Software 5,000 253,000
 Pre production Capital Costs (From Appendix B) 13,174

Total Fixed Capital 266,174

Net Working Capital (From Part 3) (12,359)

TIC or I = $ 253,815

Part 5 Financial Structure

TIC(I) 253,815
r (return on investment) 9.80%
L (Loan)
ib (interest) 5.24%
s (no. of Installments) 5

Optimal repayment R=( I*r)/1+(s*ib) I*r 24,874

(per installment) 1+(s*ib) 1.262

R = 19,710

Optimal amount of Loan L=R*s 98,549

Optimal amount via Equity I-L = 155,266

Optimal Equity Ratio 0.61 61.17%

 Optimal amount via equity I-debt amount = 98,549

Optimal Debt Ratio 0.39 38.83%

Part 6
Revenue Expected to grow 2.70% per year
Indirect cost expected to grow 1.90% per year
Direct cost expected to grow 2.80% per year
Corporate Tax 11% per year

Transactions Year 1 Year 2 Year 3 Year 4

Revenue 900,526 924,840 949,811 975,456
- cost of operations 783,938 804255 825109 846516
GOP 116,588 120,585 124,702 128,940
- Depreciation n/a n/a n/a n/a
NPBI 116,588 120,585 124,702 128,940
- interest n/a n/a n/a n/a
NPBT 116,588 120,585 124,702 128,940
- Taxes (11%) 12,825 13,264 13,717 14,183
NPAT 103,764 107,321 110,985 114,756

Net Cash Flow(NCF)= GOP - Taxes - Changes in investment

Year 1 Year 2 Year 3 Year 4

NCF $ 103,764 $ 107,321 $ 110,985 $ 114,756

Part 7
 Payback Preiod(PBP) = -(Initial investment) + cashflow = 0

PBP = 0 -(253815)+103764+107321+42730 = 0

PBP 2 years + 42730

Part of 3rd Year (42730/110985)*12 4.60

PBP 2 years and 4 months and 18 days

Part 8

t = 11%
we = 38.83% 61%
 wd = 61.17% 39%

kd = ib(1-t) 0.0524(1-0.11) 4.66%

ks = id+(ßΓ) 0.0148+(0.66*0.02) 2.80%

WACC 0.61*0.0280+0.39*0.0466 3.53%

To find net present value(NPV)

DCF of Year 1 DCF of Year 2 DCF of Year 3 DCF of Year 4

2
103764/(1+0.0353) 107321/(1+0.0353) 110985/(1+0.0353) 114756/(1+0.0353)4
3

110226 100127 100015 99887

Present Value 510002

NPV (PV-I) 510002-253815 $ 256,187

Net Prevent Value is Positive because present value of all future cashflows in greater than the investment. So, it is a vaible project to

Part 9
With Positive NPV, we have identified that project is viable. But to know that to what extent this project is viable, we need to find Internal Rate
 IRR is the discount rate that equates the today's investment cost to the present value of all the future cash flows

253815 = 103764/(1+IRR) + 107321/(1+IRR)2 + 110985/(1+IRR)3 + 114756/(1+IRR)4 + 118640/(1+IRR)5

By Trial and Error

Let IRR = 10% 94331 + 88695 + 83385 + 78380 + 73666

Let IRR = 20% 86470 + 74528 + 64227 + 55341 + 47679

Let IRR = 40% 74117 + 54756 + 40446 + 29872 + 22059

Let IRR = 35% 76862 + 58887 + 45109 + 34549 + 26458

Let IRR = 33% 78018 + 60671 + 47175 + 36675 + 28508

Let IRR = 32% 78609 + 61594 + 48255 + 37799 + 29605

From trial and error we have identified that IRR is somewhere between 32% and 33% (32% < IRR < 33%)
As per question if we have to maintain 2% of range between L and U, We can say 32% < IRR < 34% or 31% < IRR < 33%.
Part 10

Given Two Scenarios: Optimistic Scenario Pessimistic scenario

Change in Revenue 25% surge in price 25% drop in price
Change in TVC 25% surge in price 25% drop in price Same as Revenue because TVC is directly proportional to Quantity
Change in TFC Remains same Remains same

Projected Year 1 Optimistic Scenario Pessimistic Scenario

Total Reveue 900526 1125658 675395
Total Variable Cost(TVC) 602452 753065 451839
Total Fixed Cost(TFC) 181486 181486 181486
Q(% of Capacity) 61% 49% 81%

In optimistic scenario BEP % is 49% which means any production above 49% will be profit but in given project BEP% is 61% which is 12% less. So there is req
quantity or price to increase the profit margin. On the other side, Pessimistic scenario has BEP % of 81%, so the profit margin is very
With the higher BEP, the project is considered the more risky and high losses are expected as a result of any decline in the producti
Part 3

Number GAP Coverage Period Turnover Coefficient(TOC) Working Capital

603352.42/121.67
1 A/R 3 days 365/3 = 121.67 4,959
270157.80/52
2 Inventory of Raw Materials 7 days (1 week) 365/7 = 52 5,195
270157.80/12
3 A/P 30 days (1 month) 365/30 = 12 22,513

Annual Cost of Operations (67% of Total Revenue) 603,352

Annual Cost of Raw Material (30% of Total Revenue) 270,158

New Working Capital 1+2-3 (From the table) $ (12,359)

Year 5 Operation costs Year 1 Year 2 Year 3
1,001,793 Total Direct Cost 602,452 619,321 636,662
868490 (grow by 2.8%)
133,303 Total Indirect Cost 181,486 184,934 188,448
n/a (grow by 1.9%)
133,303 Total Cost of Operations 783,938 804,255 825,109
n/a
133,303
14,663
118,640

Year 5
$ 118,640
 DCF of Year 5
118640/(1+0.0353)5
99747

vestment. So, it is a vaible project to invest in.

is viable, we need to find Internal Rate of Return(IRR)

ure cash flows

+ 118640/(1+IRR)5

= 418457 DCF is greater than I

= 328245 DCF is greater than I

= 221250 DCF is less than I

= 241865 DCF is less than I

= 251046 DCF is less than I

= 255862 DCF is greater than I

IRR < 33%)

31% < IRR < 33%.
directly proportional to Quantity

Pessimistic Scenario
675395
451839
181486
81%

61% which is 12% less. So there is requirement of increase in the

% of 81%, so the profit margin is very less.
a result of any decline in the productivity.
Year 4 Year 5
654,488 672,814

192,028 195,677

846,516 868,490