Calculate the initial outlay and depreciable value of the project. Calculate the annual after-tax operating cash flow for Years 1 - 5. Determine the terminal year (in year 5) after-tax non-operating cash flow.
You have determined in your mind that you would like to have a business of your own, although your father runs a family restaurant in your local city. You have therefore, decided to have a medium size snack and cocktails bar which will accommodate the cruise ship passengers who visit your city. You plan to keep the business for five years after which you will sell it off to your brother John for $2,000,000 and go off to do your Master’s Degree in the UK. Though you will be occupying the establishment from your grandmother for free, you have decided that you need to make some improvements to the property which will cost you $1,500,000. Additionally, you will spend $275,000 in bar stools, tables and decorations. If this space had been leased out, it would have fetched a lease rental of $75,000 per year. You will
Revenues are projected to be $500,000 the first year and is expected to increase by 20% the second year, 15% the third year and to continue to increase at 10% thereafter. Fixed annual operating costs are expected to be salaries of $110,000, Utilities $75,000, Food and Liquor License is 15% of gross revenues and taxes are 40% of net revenues.
- Calculate the initial outlay and depreciable value of the project.
- Calculate the annual after-tax operating cash flow for Years 1 - 5.
- Determine the terminal year (in year 5) after-tax non-operating cash flow.
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