An existing and established restaurant chain wants to open another location. Their analysis tells them that...

An existing and established restaurant chain wants to open another location. Their analysis tells them that the new building will lease for $4k monthly. They would need to make $500k in improvements, which they would depreciate over 10 years. Salaries for new employees would be $400K per year. Food costs would be 25% of sales. Incremental revenues are expected to be $120K per month initially with 3% growth year over year. If their existing tax rate is 22% and the existing expected return is 15%, what is the incremental value of the new location?

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Expert Solution

Answer:

Incremental value of the new location = $2,489,435.01

Working:

Lease =$4000 per month

Yearly lease =4000 * 12 =$48,000

Incremental revenue in year 1 = 120000 * 12 = $1,440,000

jeff jeffy answered 1 month ago

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