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TWSS Eat Fresh (a Fast Food Chain) – Financial Feasibility
Case Study
Transaction Summary
TWSS Eat Fresh (a Fast Food Chain) and MPT (Space Provider) are evaluating a proposal to open a fast
food restaurant TWSS Eat Fresh , at Delhi International Airport. MPT will provide Space for the Restaurant
and TWSS Eat Fresh will develop and manage the Restaurant. In consideration of Space, MPT has option
of charging either fixed lease rentals for the Space or sharing of restaurant revenue. As a advisor to MPT,
you need to find out best possible option for MPT to maximize its profit and also to keep project financially
feasible for TWSS Eat Fresh . You are required to calculate:
▪ IRR from project for TWSS Eat Fresh
▪ IRR from project for MPT under both Fixed rental and Revenue sharing option
▪ Suggest the Maximum %age revenue or Fixed Rentals MPT can negotiate, keeping in mind that
✓ TWSS Eat Fresh Net profit margins from the sixth year of operation (i.e. Fiscal Year Ending
31-March’20) should not be less than 10%
▪ Under which option, MPT will make maximum return if:
✓ The fixed lease rental to be charged by MPT can’t go beyond 2200/ sq. ft under any circumstances
Assumptions:
General Assumptions
One Million 1,000,000
One Year (days) 365
Capex Assumptions
Particulars Total Cost
Construction Cost (all inclusive) 1,000,000
Dining & Office Furniture 150,000
Equipment & Machinery 500,000
Electrical Cost 200,000
Computers & IT Infrastructure 200,000
Space Acquisition
Space Requirement (Square Feet) 1,000
Particulars Option 1 Option 2 Option 3
Purchase Revenue Sharing Fixed Lease Rental
Cost 30,000 20% 2,000
Per Sq. feet %age of Revenue Per Sq. feet per Year
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Phasing Plan
Capex Timeline
Particulars Days Start Date End Date
Civil Construction 180 30-Sep-13 29-Mar-14
Total Period Post Civil Construction
for Furnishing, Fit out & Electricals 90 29-Mar-14 27-Jun-14
Computer & IT Infrastructure 5 27-Jun-14 2-Jul-14
Total Construction Period 275
Particulars Measure Date
COD Date 30-Sep-13
Fiscal Year End Date 31-Mar-14
Construction Period Days 275
Construction Period Ends Date 2-Jul-14
Commencement of Restaurant Operations Date 3-Jul-14
End of First Fiscal Year Date 31-Mar-15
Working Capital Assumptions
Stock Days 15 Days
Debtor days 0 Days
Creditor days 15 Days
Minimum Cash Balance 30 Days of Expense except COGS
Project Financing
Equity 100%
Debt 0%
Direct Cost and Revenue Assumptions
Particulars Direct Cost (Per Unit) Sale Price Unit Sales Per
per Unit Day
(Price)
Burgers
Chicken Burger 20 80 60
Chicken Cheese Burger 25 100 60
Veg Burger 15 60 100
Veg Cheese Burger 20 80 100
Sandwiches
Chicken Sandwich 20 80 50
Egg Sandwich 20 80 50
Veg Sandwich 15 60 50
Club Sandwich 20 80 50
French Fries 12 50 100
Beverages
Cold Coffee 15 50 80
Espresso Coffee 12 30 80
Soft Drinks (Large) 25 50 80
Soft Drinks (Regular 250ml) 15 30 80
Tea 5 15 80
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Growth Up to 2 Years 30.0%
Growth 3 to 5 Years 10.0%
Post 5 Year growth 5.0%
Price and Cost Escalation (per year) 5%
Operating Cost Assumptions
Operating Expenses (as % of Total Revenues)
Staff Salaries 10%
Utilities (Electricity, Water, and Gas) 10%
Incentives 2.5%
Administration and General 5%
Management Fee 1,200,000
Promotional and Marketing Expenses 5%
Income Tax Rate 32.45%
Rate of Depreciation and Other Assumptions
Particulars Depreciation Rate
Civil Construction 10%
Interiors/Fit and Electricals 10%
Computers 60%
Cost of Capital / Minimum Required
Return 18.0%
Long Term Growth 5.0%
