The Hot New Café - Capital budgeting

School: Academy of Massage Therapy - Hackensack           Price: $10.00 USD

Document Description

A quaint but well-established coffee shop, the Hot New Cafe, wants to build a new cafe for increased capacity. Expected sales are $800,000 for the first 5 years. Direct costs including labor and materials will be 50% of sales. Indirect costs are estimated at $100,000 a year. The cost of the building for the new cafe will be a total of $750,000, which will be depreciated straight line over the next 5 years. The firm's marginal tax rate is 37%, and its cost of capital is 12%.

For this assignment, you need to develop a capital budget. It is important to know what the cafe managers should consider within their capital budget. You must also define the key terms necessary to understand capital budgeting. In this assignment, please show all work, including formulae and calculations used to arrive at financial values. You must answer the following:

Using the information in the assignment description:
Prepare a capital budget for the Hot New Cafe with the net cash flows for this project o

Written By

Studypool Tutor
Academy of Massage Therapy - Hackensack
The Hot New Caf - Capital budgeting1) Preparation of Capital budgetInitial investment$SalesLess: Direct costs (50% of sales)Less: Indirect costsLess: Depreciation expense*Earnings before taxLess: Tax at 37%Earnings after taxAdd: Depreciation expenseCash flows after tax$Year 0(750.000)$$$$$$$$(750.000) $Year 1800.000(400.000)(100.000)(150.000)150.000(55.500)94.500150.000244.500Year 2$$$$$$$$$800.000(400.000)(100.000)(150.000)150.000(55.500)94.500150.000244.500Year 3$$$$$$$$$800.000(400.000)(100.000)(150.000)150.000(55.500)94.500150.000244.500Year 4$$$$$$$$$800.000(400.000)(100.000)(150.000)150.000(55.500)94.500150.000244.500*Workings: - Depreciation expenseStraight line depreciation per year = [Cost - Salvage value]/Estimated life=[$750,000 - $0]/5 years=$150,000 per year2) Calcula
lock_open Buy Document

Reviews from Students

Studypool Student
"Very Satisfied."
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1831 tutors are online

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors