After a trip to Bordeaux, France, you are considering opening a restaurant based on Restaurant L'Entrecote. You will offer a fixed menu of salad, steak and french fries. You plan to run the restaurant for two years and then retire. Start-up costs, to be incurred immediately, are $500,000. Start-up costs include kitchen equipment, kitchen supplies, renovations, furniture, fixtures, and the point-of-sales system. Assume that all of those assets are classified as 5-year property (with depreciation rates of 20% and 32% in the first two years). The assets can be sold for $150,000 after two years. You expect 100 diners per night. The restaurant will be open for 300 nights per year. The average diner orders food with a menu price of $35 and beverages with a menu price of $15. Food costs are 34% of the menu price and beverage costs are 50% of the menu price. The nightly wages are $2,160 (for the chef, 5 kitchen staff, a bartender, the Maitre d', and 10 wait staff). Municipal tax, rent, and utilities are $41,400 per annum. Assume that all revenues and operating expenses are received (paid) at the end of each year. The small business tax rate is 20%. When the restaurant opens, you will have to invest in an inventory of wine, beer, and liquor costing $50,000. What is the NPV for the proposed acquisition if the cost of capital is 10%? O a. $432,880 O b. $128,600 Oc. $102,880 O d.$7,812 e. $9,586
After a trip to Bordeaux, France, you are considering opening a restaurant based on Restaurant L'Entrecote. You will offer a fixed menu of salad, steak and french fries. You plan to run the restaurant for two years and then retire. Start-up costs, to be incurred immediately, are $500,000. Start-up costs include kitchen equipment, kitchen supplies, renovations, furniture, fixtures, and the point-of-sales system. Assume that all of those assets are classified as 5-year property (with depreciation rates of 20% and 32% in the first two years). The assets can be sold for $150,000 after two years. You expect 100 diners per night. The restaurant will be open for 300 nights per year. The average diner orders food with a menu price of $35 and beverages with a menu price of $15. Food costs are 34% of the menu price and beverage costs are 50% of the menu price. The nightly wages are $2,160 (for the chef, 5 kitchen staff, a bartender, the Maitre d', and 10 wait staff). Municipal tax, rent, and utilities are $41,400 per annum. Assume that all revenues and operating expenses are received (paid) at the end of each year. The small business tax rate is 20%. When the restaurant opens, you will have to invest in an inventory of wine, beer, and liquor costing $50,000. What is the NPV for the proposed acquisition if the cost of capital is 10%? O a. $432,880 O b. $128,600 Oc. $102,880 O d.$7,812 e. $9,586
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:After a trip to Bordeaux, France, you are considering opening a restaurant based on Restaurant L'Entrecote. You will offer a fixed menu of salad, steak
and french fries. You plan to run the restaurant for two years and then retire. Start-up costs, to be incurred immediately, are $500,000. Start-up costs
include kitchen equipment, kitchen supplies, renovations, furniture, fixtures, and the point-of-sales system. Assume that all of those assets are classified
as 5-year property (with depreciation rates of 20% and 32% in the first two years). The assets can be sold for $150,000 after two years. You expect 100
diners per night. The restaurant will be open for 300 nights per year. The average diner orders food with a menu price of $35 and beverages with a menu
price of $15. Food costs are 34% of the menu price and beverage costs are 50% of the menu price. The nightly wages are $2,160 (for the chef, 5 kitchen
staff, a bartender, the Maitre d', and 10 wait staff). Municipal tax, rent, and utilities are $41,400 per annum. Assume that all revenues and operating
expenses are received (paid) at the end of each year. The small business tax rate is 20%. When the restaurant opens, you will have to invest in an
inventory of wine, beer, and liquor costing $50,000. What is the NPV for the proposed acquisition if the cost of capital is 10%?
O a. $432,880
O b. $128,600
O c. $102,880
O d. $7,812
e. $9,586
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