Dr Nick

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About Dr Nick

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Elementary,Middle School,High School,College,University,PHD

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Teaching Since: May 2017
Last Sign in: 339 Weeks Ago, 5 Days Ago
Questions Answered: 19234
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Education

  • MBA (IT), PHD
    Kaplan University
    Apr-2009 - Mar-2014

Experience

  • Professor
    University of Santo Tomas
    Aug-2006 - Present

Category > Business & Finance Posted 17 Jun 2017 My Price 13.00

A quaint but well-established coffee shop

 

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 $100,000 a year. The cost of the building for the new cafe will be a total of $750,000, which will be depreciated straight line over the next 5 years. The firm's marginal tax rate is 37%, and its cost of capital is 12%.

For this assignment, you need to develop a capital budget. It is important to know what the cafe managers should consider within their capital budget. You must also define the key terms necessary to understand capital budgeting. In this assignment, please show all work, including formulae and calculations used to arrive at financial values. You must answer the following:

  • Using the information in the assignment description:
    • Prepare a capital budget for the Hot New Cafe with the net cash flows for this project over a 5-year period.
    • Calculate the payback period (P/B) and the net present value (NPV) for the project.
    • Answer the following questions based on your P/B and NPV calculations:
      • Do you think the project should be accepted? Why?
      • Define and describe Net Present Value (NPV) as it pertains to the new cafe.
      • Define payback period. Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years. Do you think the project should be accepted? Why?

Answers

Dr Nick
(4)
Status NEW Posted 17 Jun 2017 06:06 PM My Price 13.00

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