### Feasibility Study and Cash Flow Analysis for a New Coffee Shop#### Scenario:You have just completed a $24,000 feasibility study for a new coffee shop in some retail space you own. You bought the space two years ago for $97,000, and if you sold it today, you would net $117,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $26,000 plus an initial investment of $5,000 in inventory. What is the correct initial cash flow for your analysis of the coffee shop opportunity?#### Step-by-Step Instructions:**Identify the relevant incremental cash flows below: (Select all the choices that apply.)**- A. Capital expenditure to outfit the space.- B. Amount you would net after taxes should you sell the space today.- C. Price you paid for the space two years ago.- D. Initial investment in inventory.- E. Feasibility study for the new coffee shop.**Correct Answers:**- A. Capital expenditure to outfit the space.- B. Amount you would net after taxes should you sell the space today.- D. Initial investment in inventory.- E. Feasibility study for the new coffee shop. **Calculate the initial cash flow below: (Select from the drop-down menus and round to the nearest dollar.)**| Dropdown Description | Value Input ($) ||:-----------------------:|:-----------------:|| Capital Expenditure (outfit of space) | $26,000 || Opportunity Cost (net selling price of space) | $117,000 || Initial Investment in Inventory | $5,000 || Feasibility Study Cost | $24,000 |**Breakdown of Calculation:**1. **Capital Expenditure (outfit of space):** - Cost to outfit the space for a coffee shop: $26,000 2. **Opportunity Cost:** - Amount you would net after taxes should you sell the space today instead of using it: $117,0003. **Initial Investment in Inventory:** - Initial cost to stock inventory: $5,0004. **Feasibility Study Cost:** - Cost of the feasibility study for the new coffee shop: $24,000**Total Initial Cash Flow Calculation:**Adding these amounts will give **Educational Content on Feasibility Study and Cash Flow Analysis for a Coffee Shop**---### Case Study ScenarioYou have just completed a $24,000 feasibility study for a new coffee shop in some retail space you own. You bought the space two years ago for $97,000, and if you sold it today, you would net $117,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $26,000 plus an initial investment of $5,000 in inventory. What is the correct initial cash flow for your analysis of the coffee shop opportunity?---### Relevant Incremental Cash FlowsIdentify the relevant incremental cash flows below:- **(Select all the choices that apply)** A. Capital expenditure to outfit the space. ![Checkmark next to this option] B. Amount you would net after taxes should you sell the space today. ![Checkmark next to this option] C. Price you paid for the space two years ago. D. Initial investment in inventory. ![Checkmark next to this option] E. Feasibility study for the new coffee shop.---### Calculation of Initial Cash FlowCalculate the initial cash flow below:**(Select from the drop-down menus and round to the nearest dollar)**| # | Description | Amount ($) ||-------|-------------|------------------|| 1 | | || 2 | | || 3 | | || 4 | Free Cash Flow | $ |---### Explanation of Relevant Cash Flows - **Capital Expenditure to Outfit the Space ($26,000):** This is a necessary expense to prepare the retail space for the coffee shop.- **Net Amount if Space Sold Today ($117,000):** If the space is sold today rather than used for the coffee shop, this amount is what you would forgo, representing an opportunity cost.- **Initial Investment in Inventory ($5,000):** This is essential for stocking the coffee shop and must be included in the initial cash flow.---### Example CalculationTo compute the initial cash flow, you need to consider the relevant expenses and opportunity costs:\[Initial Cash Flow = \text{Capital Expenditure} + \text{Net Selling Amount} + \text{Inventory Investment}\]Substitute the values to find the free cash flow:

Free cash flows are Cash that is left over after a company has paid for its operating and capital…

Answered: Identify the relevant incremental cash…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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