Reference no: EM132741268
Question - CESIM Simulation: Jameel's food restaurant
Jameel owns a popular burger sandwich restaurant in Ramallah, since five years following the success of his first restaurant, Jameel is now considering opening a second one in Nablus, by which he expects to succeed as he is manufacturing low fat meet with healthy side products.
Jameel overall plan is to begin and run his new restaurant for five years, and sell both new restaurants off to a new owner and retire from the restaurant work.
The cost of starting up as second restaurant will be as follows:
Purchase of real estate (retail food outlet): $400,00 (which will be sold for the same price at the end of the project).
Installation of specialized kitchen equipment: $40,000
Furniture and fittings: $25,000
Jameel estimates that the net working capital will increase by $20,000 for the first year for the new restaurant, which will be returned back at the end of year 5 (The end of the project), he also estimates the yearly operating cost for the new location would be identical to his current restaurant as follow:
Labor cost (4 person): $96000
Raw Material:
Meat (200 piece per day x 7 days x 52-week x 75 cent /piece): $54600
Drinks: $18400
Other Food supplies: $72800
Non-Food supplies: $22200
Total raw material: $168000
The expected revenue at the current location is as follows:
Sales of burger and other food items: $418000
Drinks: $92000
Total revenue: $510000
In addition to contributing profits, Jameel expects that opening a second restaurant will decrease the cost of each Burger piece of Meat from 75 cents to 60 Cents in both locations. This due to economies of scale, Jameel expect also that he will be able to manage the two location himself. avoiding hiring a new manager for the new location.
Assume: Tax rate is 20%, the required rate of return is 10%, Depreciate the kitchen equipment and the furniture over 5 years using straight line method.
Required -
1. What are the fixed costs?
2. What are the variable costs?
3. Describe the demand on Jameel's?
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