Question

You are planning to open a special restaurant in a college town. Please give a workable plan and write a financial analysis report to present its feasibility according to the following procedure.

Please answer the following questions in your analysis.

1. Brief introduction

Please introduce your restaurant, including at least the following three aspects.

What is the food style of your restaurant and why? (Traditional American, Italian, Thai, etc. Burgers, Sushi, noodles, seafood, etc.)

What’s your restaurant’s location and why?

The scale of your restaurant.

2. Cost and Benefit Estimation

Please conduct on-site investigation (show your work and references if using any) to get the cost & benefit estimation including at least the following aspects:

Purchase storefront (assume it as non-depreciable asset) and license fee

Tables, chairs, tableware, air conditioner, etc.

Decoration, advertisement, etc.

Number of employees and their average salary.

Annual cost of raw material, utilities, etc.

Daily number of customers, personal price.

3. Financing

Suppose you need an initial fund equal to the upfront investment, i.e., sum of a, b, and c in Question 2. You have half of it and still need a 3-year bank loan of the other half with annual interest rate 9%.

4. Income statement

Display income and expense data in a tabular format and get the annual profit for your restaurant. When considering depreciation, please state your own assumption clearly.

5. Cash flow and payback period

Draw cash flow of your investment and find the year of payback period. The payback period is the length of time required to recover the cost of an investment ignoring the time value of money.

6. IRR

Using your payback period to calculate IRR and compare it with MARR. We assume MARR to be 5%.

7. Modification

If IRR is less than MARR, think of potential method to modify your plan.

Answer 1

Restaurant Name: Millet Food Restaurant

Location: College Town,USA

Introduction: We are Opening Millet Food Restaurant in College town because of more health benefits availed from consuming Millet foods. For Example Foxtail helps in Control blood sugar,doesnot contain Gluten and decreases risk of cancer Similarly Kodo is good source of Amino acids gives instant energy and releases energy for longer period. Reason for Choosing College Town location is to Develop hygienic Practices for Future generations since they build their Carrer after University.

Initial Cost of Investment	($ in '000)
Storefront	1500
License fees	2000
Tables,Chairs& Air conditioner	1000
Decoration and advertisment	500
Total Cost	5000
Amount Available	2500
Bank Loan for balance amount	2500
Number of Employees	35
Average Salary/Employee per month	4
Annual Cost of Rawmaterials	5500
Number of customer daily	50
Minimum price per customer billed	0.5
Revenue per day	25
Revenue per annum	9125

Income Statement for year ended 31.03.2019
Expenses	($ in '000)	Income	($ in '000)
Rawmaterials	5500	Revenue	9125
Employee Cost	1680
Depreciation	100
Amotisation	350
Interest on Loan	225
(2500*9%)
Profit	1270
Less Tax@ 30%	381
Profit After Tax	889
Profit After Tax	889
Add: Non Cash Expense
Depreciation	100
Amotisation	350
Cash Inflow P.a	1339
Pay Back Period Calculation:
a)Initial Investment	-5000
b)Cash Inflow P.a	1339
Payback Period(a/b)	3.7

IRR

3%