Reference no: EM132775386

Problem 1: Pizza House is a local restaurant chain that is contemplating opening its tenth restaurant in town and is starting the capital budgeting process for the new restaurant. The company already purchased the land on which the new restaurant will be built two years ago for $500,000. In addition, the company spent $15,000 for a marketing study last year to determine whether there is enough demand for the new restaurant. Which of the following items should be included in the free cash flow calculations for the project?

Select all that apply. (Could be more than one)

I. Construction costs of $300,000 for the new restaurant.

II. The loss of sales if customers from one of the other restaurants start dining at the new restaurant instead.

III. The current value of the land if it were sold. There is currently an offer for $510,000 from an interested buyer.

IV. The $15,000 cost of the marketing study.

V. The $500,000 cost of the land.

VI. The interest expense if the project is financed with debt.