Reference no: EM13332736
Part -1:
Case study: BUTTERFLIES
1. Prepare a cash flow forecast. Assume that the business will be run for 6 years, and then the building will be sold for 300,000. The equipment will be depreciated straight line over the life of the restaurant. The tax rate is 30%.
2. If the required return of the investors is 14% should the expansion proceed?
3. Conduct a sensitivity analysis which explores the impact on the viability of the project of:
a. The level of sales
b. The cost of food as a percentage of sales and
c. Working capital as a percentage of sales
4. Write a report to Lisa and Mark which uses your answers to 1, 2 and 3 as the basis for a recommendation on the investment.
Part -2:
Please "run the numbers" for Mark and Lisa.
1. Prepare a cash flow forecast for the appropriate period. Assume that the restaurant will be run for six years, at the end of which the building could be sold for £300,000 but the equipment will have no value at all. Also assume that tax will be calculated at 30% of profits ignoring depreciation, and that there are no tax allowances available on any of the equipment. Tax is paid in the year after the profit is made.
2. Note that Mark and Lisa require a return of at least 14%. Should they go ahead with the Oakley expansion?
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