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?
A double-spaced, two page Word document that contains answers
to the word questions.
You must include a Microsoft Excel spreadsheet for your
calculations.
Either the Word document or the Excel spreadsheet must have
all of your calculation values, your complete calculations, any
formulae that you used, the sources you wish to cite, and your
answers to the questions listed in the assignment guidelines.
Your submitted assignment must include the following:
Both the questions should only have a similarity index of 25% or less.
BUGDET
Financial reporting
Financial reporting contains the revelation of monetary info to organization and the community
about how the business is performance over a precise era of period….
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