Calculate the annual sales revenue required

Reference no: EM131801403

Question: An owner has $200,000 to invest in a restaurant. Furniture and equipment are to be purchased for $160,000 and $40,000 respectively. First year estimates anticipate the following costs:

- Food Cost 35% of sales

- Wages 30% of sales

- Other variable costs 18% of sales

- Fixed costs $86,000 (not included in this is depreciation. Depreciation of the furniture and equipment will be 20% per year)

- The owner wants an 18% before tax operating income return on his investment

- Calculate the annual sales revenue required

- As an alternative, the owner is considering borrowing $60,000 at an 8% interest rate. Additionally, he is considering renting the equipment for $10,000 per year instead of buying it. Calculate the annual sales revenue required to achieve the 18% return on investment required. (HINT: the owner's investment in question b will not be $200,000. Subtract the $60,000 that he will borrow, and also subtract the cost of the equipment since he is renting it.

- Which option is better? Why?

Reference no: EM131801403

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