A quaint but well-established coffee shop the hot new

Assignment Help Managerial Accounting

Reference no: EM13378234

A quaint but well-established coffee shop, the Hot New Café, wants to build a new café for increased capacity. It's 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 café 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 Café 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 café.

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?

Reference no: EM13378234

Questions Cloud

Information related to plant assets natural resources and : information related to plant assets natural resources and intangibles at the end of 2010 for spain company is as

The charm city bakery makes coffee cakes and danish : the charm city bakery makes coffee cakes and danish pastries in large pans. the main ingredients are flour and sugar.

You are a manager in a fictitious company of your choice : you are a manager in a fictitious company of your choice. your director has asked you to explain to the department

Determine whether the following linear programming problem : determine whether the following linear programming problem is infeasible unbounded or has multiple optimal solutions.

A quaint but well-established coffee shop the hot new : a quaint but well-established coffee shop the hot new cafeacute wants to build a new cafeacute for increased capacity.

Solve the following linear programming model graphically in : solve the following linear programming model graphically. in addition write the problem in standard form and do a

1 why might a company want to reduce its cash conversion : 1. why might a company want to reduce its cash conversion cycle? consider the financial statement implication of

If american consumers decrease their spending on imports : if american consumers decrease their spending on imports but leave their overall consumption spending constant hence

The charm city cereal company makes a cereal from several : the charm city cereal company makes a cereal from several ingredients. two of the ingredients oats and rice provide

User Account

All Pages