Review problem on two financing alternatives

Reference no: EM132017796

Question: A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 40% of sales, while fixed cost will be $450,000. The first year's sales estimates are $1,250,000. The cost to start up this restaurant will be $2,000,000. Two financing alternatives are being considered:

a) 50% equity financing and 50% debt at 12%, or

b) all equity financing. Common stock can be sold at $5 per share.

Reference no: EM132017796

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