Question

A quaint but well-established coffee shop, the Hot New Cafe, wants to build a new cafe for increased capacity. Expected sales are $800,000 for the first 5 years. Direct costs including labor and materials will be 50% of sales. Indirect costs are estimated at $200,000 a year. The cost of the building for the new cafe will be a total of $850,000, which will be depreciated straight line over the next 5 years. The firm's marginal tax rate is 38%, and its cost of capital is 10%.. Prepare a capital budget for Hot New Café with net cash flows over a 5-year period. Show me how to do this? Im having the most trouble with determining NPV, PV and Payback Period. I also want to check my other calculations against yours.

Answer 1

Hi There, Please find the solution of the above mentioned problem. Thanks

Cost Of proiect85 850000 5 Years 170000 10% Particulars Sales Direct Cost @50% Indirect Cost EBITDA Depreciation EBT Tax @38% EAT Depreciation Cash Flow 1 Year2 Year 3 Year 4 Year5 Year Sum 800000800000 800000 800000800000 400000400000 400000 400000400000 200000200000 200000 200000200000 200000 200000 200000 200000 200000 170000170000 170000 170000 170000 Life Depreciation Cost Of Capital 0000 30000 30000 30000 30000 1140011400 11400 11400 11400 18600 18600 18600 18600 18600 170000170000 170000 170000 170000 1886001 188600 18860이 18860이 18860이 943000 Discounted Cash Flow @10%| 171455 | 155867.8 | 141698 | 128816 | 117106 | 714942.4 NPV is negative so Dicounted Cash Flow Sum - Cost of project 135058 project is not NPV accepted Sum Of Discounted Csh Flow PT 714942 There is even Cash Flow Hence payback period would Payback Period Payback Period 4.5 Year be. - Cost of project/ Cash Flow