In: Finance
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?
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