Feasibility evaluation typically include break-even analyses

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Financial Feasibility evaluation typically includes Break-Even Analyses. Based on the information provided below, please calculate the number of sales per day at which the proposed book store with coffee shop will break even.

Let us assume that you intend to start your café for students in Ames on Main Street. Monthly rent is $3000. You rent all coffee making equipment from a supplier who charges you a fixed $2000 every month. You have to order the coffee ingredients and other beverages from this supplier on a weekly basis depending on prior week sales. An average you expect that each visitor will drink at 1.4 coffees. You expect every 30th customer will also buy a muffin. The average price for a coffee is $3.50 and the average cost per coffee is $0.50. The contribution margin of a muffin is $3.00. Your café will be open 10 hours every day including holidays. At all times, you need at least one trained employees to be present to serve customer. In addition, you expect that you need a second employee for 80 hours every month. Each of your employees will earn $10/hour. In addition, you assume that you will have $5,600 of other expenses (e.g., insurance, tax accounting, advertising) every month which are independent of your sales volume. Now you are curious, how many customers does your business need every day to break even assuming a month has 30 days and a year 360 days?

(1) The overall total monthly fixed cost of this business venture are _________

(2) The average contribution margin of a single coffee sold is _________

(3) The proposed cafe would break-even at __________ customers per day.

(4) Assume that on average 20% of the student body of 36,000 students frequents cafes on any given day. You believe that your maximum market share in the Ames student coffee shop market is 2% (two out of every 100) because of the strong established coffee providing competitors (e.g., Starbuck, Caribou, University Coffee Shops). If you assume all these estimates are correct, then the combination of this market information with your break-even information indicates the proposed café venture is rather

Reference no: EM132291839

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