The base case for Grandmother’s Chicken Restaurant (see Example 4.2) is to do nothing. The capacity ofthe kitchen in the base case is 80,000 meals per year. A capacity alternative for Grandmother’s ChickenRestaurant is a two-stage expansion. This alternative expands the kitchen at the end of year 0, raising itscapacity from 80,000 meals per year to that of the dining area (105,000 meals per year). If sales in year 1and 2 live up to expectations, the capacities of both the kitchen and the dining room will be expandedat the end of year 3 to 130,000 meals per year. This upgraded capacity level should suffice up throughyear 5. The initial investment would be $80,000 at the end of year 0 and an additional investment of $170,000 at the end of year 3. The pretax profit is $2 per meal. What are the pretax cash flows for this al-ternative through year 5, compared with the base case?
The base case for Grandmother’s Chicken Restaurant (see Example 4.2) is to do nothing. The capacity of
the kitchen in the base case is 80,000 meals per year. A capacity alternative for Grandmother’s Chicken
Restaurant is a two-stage expansion. This alternative expands the kitchen at the end of year 0, raising its
capacity from 80,000 meals per year to that of the dining area (105,000 meals per year). If sales in year 1
and 2 live up to expectations, the capacities of both the kitchen and the dining room will be expanded
at the end of year 3 to 130,000 meals per year. This upgraded capacity level should suffice up through
year 5. The initial investment would be $80,000 at the end of year 0 and an additional investment of $170,000 at the end of year 3. The pretax profit is $2 per meal. What are the pretax
ternative through year 5, compared with the base case?
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