Reference no: EM133148128
Question - You're a savvy entrepreneur that wants to open an ice cream shop downtown near the college campus. However, you remember your lesson on financial planning and decide it's a good idea to project cash flows for your business before investing your time and money in the operation. Your objective is break-even on a cash basis within 3 years of opening shop - Otherwise, the business opportunity is not worth your time.
You make the following assumptions and notes:
Each ice cream cone is sold for 25 and costs 6.25 to make in materials.
You plan on selling 10,000 cones in year 1, 15,000 cones in year 2, and 25,000 cones in year 3.
Sales projections after year 3 are difficult to make, but you know that they will not be lower than 25,000 cones per year.
Your lease for the business location is 125,000 annually, and your lease for the ice cream equipment is 62,500 annually.
You plan on hiring part-time staff to help you during peak season. You assume that this would cost 62,500 annually for years 1 and 2 and 125,000 in year 3.
Your overhead, legal and accounting costs amount to 62,500 in the first year and 31,250 per year in subsequent years.
Required -
1. Present a cash flow projection for the next 3 years for your ice cream business.
2. Is the ice cream shop worth your time as an investment according to your criteria?
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