Net Present Value and Papa Geo

Papa Geos Restaurant Budget professional personposal For 2012 2017 BUSN-278 Term Professorname DeVry University - Table of Contents Section designation Sub scratch Title Page Number 1. 0 Executive summary 2. 0 Sales regard 2. 1 Sales Forecast 2. 2 Methods and Assumptions 3. 0 Capital uptake Budget 4. 0 Investment Analysis 4. 1 Cash precipitates 4. 2 NPV Analysis 4. 3 Rate of Return Calculations 4. 4 Payback Period Calculations 5. 0 Pro Forma Financial asseverations 5. 1 Pro Forma Income Statement 5. 2 Pro-Forma Cash flow Statement 5. 3 Pro-Forma Balance Sheets 6. 0 Works Cited 7. 0 Appendices 7. 1 Appendix 1 description 7. 2 Appendix 2 description etc * 1. 0 Executive Summary 1. 0 Executive Summary * * This budget proposal is for the starting and running play of a single location, sit-down Italian restaurant named Papa Geos.The restaurant would be located in Orlando, Florida and would majorly target middle to lower-middle c lass families with children, as sound as adults and seniors, thus making it a friendly and family place. The major product and service provided by the restaurant would be Italian food served buffet fashion with an all-you-can-eat dress with a lot of variety including a salad bar, pizza, several different types of pasta with three or four types of sauces, soup, desserts, and a self-serve soda bar. There would besides be a gaming area within the restaurant with gaming machines installed which would be of interest to children.The business would provide wholesome and fresh food, in a simple format, with very good prices and is located in a densely populated area, all of which would help the restaurant to do well and establish itself as a popular and profitable business. * * * Also, provide a second paragraph which describes how the budget supports the companys strategy. * * Finally, provide a third paragraph where you tote up the key points from your budget, including the planning horizon, the amount of up-front investment, the NPV, Payback and IRR of the project, as well as key figures from your income command, cash flow statement, and balance sheet. * Remember, this is non a thesis or introduction of what you pull up stakes talk or so it contains the major, specific content of each section. The second and third paragraph should be written after you have finish all other sections of this template. * * As you complete sections of this template, please remove all italicized text edition in all sections of this template and replace it with your own or you will lose points * * 2. 0 Sales Forecast 2. 0 Sales Forecast * * This section forecasts the gross revenue of Papa Geos restaurant over a five- socio-economic class period.Section 2. 1 gives the estimated sales figures and a brief explanation on the changes in these figures over the planning period. * Section 2. 2 delves into the details of how this sales estimate has been arrived at, computations invol ved and the methods and assumptions utilize in the process. * Overall, this section is utilizationful is providing an estimate of how much the restaurant can befool in sales, given its internal specifics and external environment. * 2. 1 Sales Forecast * * The yearly sales forecast for Papa Geos restaurant is given below.In $ class 1 family 2 Year 3 Year 4 Year 5 Sales 933,504. 00 1,555,840. 00 1,616,517. 76 1,679,561. 95 1,745,064. 87 * My methods and assumptions for arriving at the sales figures in the table are detailed in section 2. 2 The sales figure estimated per my calculations is taken as the sale figure for Year 2. This is beca example the sales figure arrived at from the calculations can non be delusive to be sales for Year 1 as the restaurant energy not be able to accredit its full potential and attract the estimated number of customers from day one itself.Also, acquire problems with marketing, operations etc might not lead to optimum sales. Therefore , we will project barely 60% of this figure as first year sales and use the estimated figure as the sales figure for Year 2. Over the planning period, starting from Year 2 onwards, sales are expected to grow at a rate of 3. 9% every year, in line with industry estimates of the average harvest-home of the restaurant industry in the US (Source Mintel International, cited in section 6. 0). * * 2. 2 Methods and Assumptions * According to the brief given on Papa Geos restaurant, there are about 10,000 families living within 15 minutes of the restaurant. Of these, surrounded by 3% and 5% are rich households (Phoenix marketing international, Wikipedia) and it is sham that another 15% comprise of high income and upper middle class households. That leaves about 80% of the ten thousand families in the area,that are the target market for the restaurant. * * According to a research paper (in restaurant. org), American families eat out about 4 quantify a workweek.However, considering that our target market comprises of mostly middle and lower income families, Ive assumed that they eat out only about 2 times a week on an average. This means that, about 16000 families (80%*10,000)*2 eat out in a week in that area in Ohio, Florida. * * In terms of competition, although it is mentioned that McDonalds, greaser Bell and Wendys operate in the area, we assume there are other small places that people might visit to eat out. Also, people might venture out beyond their areas to eat out.Keeping these in mind, weve assumed that these four places (Papa Geos, McDonalds, Taco Bell and Wendys) will be able to capture only about 85% of these families. (16000*85%=13600/week). Of these four places, since the others are fast food and fast food restaurants generally command a larger find faultfall than other format restaurants we assume the following about their share in the pie of families Taco Bell 30%, McDonalds 30%, Wendys 30% and Papa Geos 10% * * i. e, Papa Geos can expect to capt ure 1360 (10%*13600) families per week.Since this is a family dining place, we make another assumption about the composition of the family. We assume that out of a family of 4, two are kids and two adults. Which means that about 2720 (1360*2) kids and 2720 adults (1360*2) will eat from Papa Geos per week. * * Given that a repast (including drinks) live about $7, we make the following assumptions * Adults visiting the restaurant will have meals ( $7), on an average. * Kids visiting the restaurants with their families will make a bill of about $4 per head. Given this, we outright estimate the weekly sales for adults and kids. Therefore, d * Sales from Adults per week 2720*7 = 19040 * Sales from Kids per week 2720*4 = 10880 * * Now, the total sales (both adults and kids, as part of families) per week can be estimated at 19040+10880 = $29920 * Therefore, average sales per year = 1,555,840 * The sales figure estimated by these calculations is taken as the sale figure for Year 2. This i s because the sales figure arrived at from the calculations cannot be assumed to be sales for Year 1 as the restaurant might not be able to realize its full potential and attract the estimated number of customers from day one itself.Also, teething problems with marketing, operations etc might not lead to optimum sales. Therefore, we will project only 60% of this figure as first year sales, and use the estimated figure as the sales figure for Year 2. Over the planning period, starting from Year 2 onwards, sales are expected to grow at a rate of 3. 9% every year, in line with industry estimates of the average growth of the restaurant industry in the US (Source Mintel International, cited in section 6. 0). * * * * * * * * * * * * * * * * * * 3. Capital ingestion Budget 3. 0 Capital Expenditure Budget * * Capital Expenditure Budget * Item Cost Quantity sum total cost Source Notes and Assumptions Cost of registering a business 300 300 ehow. com Cost of registering includes actual cost of registering ($70), legal fees and misc expenses (approx $230) Renovation of facility 15000 1 15000 Given This includes all kinds of beautification etc that the restaurant needs to start operations Soda fountain bar 3621 1 3621 Soda-dispenser. om Prices quoted whitethorn or may not be the identical at subsequent dates 2 pizza ovens 849 2 1698 ebay Prices quoted may or may not be the aforementioned(prenominal) at later dates salad and Pizza/dessert bar 1450 1 1450 ebay Prices quoted may or may not be the same at later dates Commercial Refrigerator 3529 1 3529 Coldtechcommercial. com Prices quoted may or may not be the same at later dates Cash Register 170 2 340 ebay Prices quoted may or may not be the same at later dates Video game vending machine Type 1 550 2 1100 ebay Prices quoted may or may not be the same at later dates Type 2 750 2 1500 ebay Prices quoted may or may not be the same at later dates Laptop for management 275 1 275 ebay Laptop purchased with Warranty, Pr ice quoted may or may not be the same at later dates desk for mgmt 25 1 25 ebay Prices quoted may or may not be the same at later dates Staff cook 319 1 319 ebay Prices quoted may or may not be the same at later dates Staff cupboard 100 1 100 simulated taff refriferator 700 1 700 ebay Prices quoted may or may not be the same at later dates Tables for the restaurant 279 20 5580 tableschairsbarstools. com Prices quoted may or may not be the same at later dates Chairs for the restaurant 55 80 4400 restaurant-services. com Prices quoted may or may not be the same at later dates Busing cart for restaurant 50 1 50 ebay Prices quoted may or may not be the same at later dates Commercial dishwasher 2500 1 2500 ebay Prices quoted may or may not be the same at later dates Restaurant signage 124 1 124 brightledsigns. om Although this is a form of advertising, this wouldnt be considered as an operating cost given the long term (more than a year) nature of its use Total 42611 * * The above table provides an estimate of the capital budget inevitable for Papa Geos restaurant. For each item, sources and assumptions used are explained towards the right side of the table. Other generic assumptions beyond those already mentioned are provided below * Miscellaneous grooming and handling equipment cost will be considered operational expenses and will not be capitalized given the short term (less than a year) use of such assets.Cutlery, swallow cups etc would be considered to fall into the same category * The total cost of registration is considered as capital expenditure due to its long term nature of use * Any fixtures like lighting etc are considered as operational expenses and will not be capitalizedThe total capital budget required is US$ 42,611. study component of this budget are renovation and equipment costs, which is true of restaurant businesses. * * * * 4. 0 Investment Analysis 4. 0 Investment Analysis * 4. 1 Cashflows * Year 1 Year 2 Year 3 Year 4 Year 5 Sourc es of Cash Total income (from food and vending machines) 9,38,944 15,61,492 16,22,390 16,85,664 17,51,404 Uses of Cash Cost of solid food 282880 294195. 2 305963. 008 318201. 5283 330929. 5895 depreciation on equipment 3069. 2 3069. 2 3069. 2 3069. 2 3069. 2 Salaries 348636 362581. 44 377084. 6976 392168. 0855 407854. 8089 employee benefits 21887. 2 22762. 688 23673. 19552 24620. 2334 25604. 92827 utilities 24000 24000 24000 24000 24000 credit card fees 23,473. 60 39,037. 30 40,559. 76 42,141. 59 43,785. 11 inventory holding costs 2,347. 36 3,903. 73 4,055. 98 4,214. 16 4,378. 51 advertising and marketing 15,000 10000 10000 10000 10000 Rent 630000 630000 630000 630000 630000 Insurance 1000 1000 1000 1000 1000 interest 13320 13320 13320 13320 13320 ncome opex (for purposes of tax calculation) (4,26,669) 1,57,623 1,89,665 2,22,929 2,57,462 Taxes 42,558. 10 51,209. 42 60,190. 80 69,514. 82 add up back depreciation (non-cash expense) 3069. 2 30 69. 2 3069. 2 3069. 2 3069. 2 Net Cash Flows (4,23,600) 1,18,134 1,41,524 1,65,807 1,91,017 * * * Highlights and Assumptions * For this cash flow analysis, only operating activities are considered nd it is assumed that there are no investing and financing cash flows that may have material impact on the business * Average meal cost $4 in materials and labor, costs expected to increase about 4 percent a year the same as increase in sales. From the sales forecast page, it is assumed that 1360 families eat at the restaurant per week * Equipment cost depreciated over a 5 year period, on a slap-up line basis * Salaries assumed to grow at about 4 percent per year * Cost of benefits to increase at 4 percent in proportion to salaries * Utility bills assumed to average out for the year and over the years * Given 2. % of sales * 10% of following months sales is given. For the whole year, assumed at 10% of the years sales of food only. Vending machine sales not included * Assumed to be higher in the first year and then average out at lesser cost over the next 4 years * Rent assumed to be 15 dollars per sq foot * It is assumed that the entrepreneur take a 100k loan * Assumed tax rate to be 27 percent. Actual tax rate is slab-based and may deviate * Includes all capex items except costs of registration and renovation expenses 4. 2 NPV Analysis * Interest rate 15% Year 1 2 3 4 5 Cash Flow (4,23,600) 1,18,134 1,41,524 1,65,807 1,91,017 PV factor 100% 87% 76% 66% 57% PV of cash flow (4,23,600) 1,02,725 1,07,013 1,09,021 1,09,214 Cumulative PV (4,23,600) (3,20,875) (2,13,863) (1,04,842) 4,373 Net Present comfort 4,373 * * Highlights and Assumptions * As can be seen from the above table, the net present value for the project is positive which shows that the project should be pursued. Interest rate of 15% has been taken for calculation, assuming that the project would be financed with debt taken at the rate * 4. 3 Rate of Return * Cost of Ca pital 6% Year 1 2 3 4 5 Net Cash Flow (4,23,600) 1,18,134 1,41,524 1,65,807 1,91,017 PV Factor 100% 94% 89% 84% 79% PV of net cash flow (4,23,600) 1,11,447 1,25,956 1,39,215 1,51,303 Cumulative PV (4,23,600) (3,12,153) (1,86,197) (46,982) 1,04,321 Net present value 1,04,321 IRR (Internal rate of return) 15% * * Highlights and Assumptions * The project presents a rate of return on 15% which can said to be attractive, as against a cost of capital rate of 6% * 4. 4 Payback Period * endure a screen shot of your Excel calculation of the payback period for this venture. * Year 0 1 2 3 4 Cash Flow (4,23,600) 1,18,134 1,41,524 1,65,807 1,91,017 Payback NA N/A N/A N/A 2. 99 * * Highlights and Assumptions * The project has a payback period of 2. 9 years, essentially it would pay back for itself in about three years time. * * 5. 0 Pro-Forma Financial Statements 5. 0 Pro-Forma Financial Statements * * In this section, the future financial statements o f Papa Geos restaurant are presented based on authorized assumed events and transactions. They are an active planning tool and tend to give an indication of the companys performance in the future based on certain assumptions. * * Pro-Forma Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 Total Sales 938,944 1,561,492 1,622,390 1,685,664 1,751,404 Total Variable costs 657,337 699,718 727,663 756,725 786,948 Contribution Margin 281,607 861,774 894,727 928,938 964,456 Total Fixed Costs 708,276 704,152 705,062 706,009 706,994 Total Income before Tax (426,669) 157,623 189,665 222,929 257,462 Tax Expense 0 42558. 014 51209. 41996 60190. 80097 69514. 82326 Net Income (426,669) 115,064 138,455 162,738 187,947 * * Assumptions and Highlights * This Pro Forma Income Sheet is prepared in Contribution format. A contribution income statement breaks costs down between variable costs and fixed costs. Contribution income statement is only an internal financial p lanning tool and cannot be assumed to reflect accounting norms or procedures like IFRS etc. * All sources for figures are the same as mentioned in Cash flow analysis (section 4. ) * Although salaries calculated are based on specifics given in the project description of Papa Geos, it is assumed that they will vary according to sales and that the company may hire or fire depending on business volumes * 5. 2 Pro-Forma Cash Flow Statement * Provide a screen shot of the cash flow statement and describe the impact of the budget on cash balances. * 5. 3 Pro-Forma Balance Sheets Provide a screen shot of your balance sheets, and describe key figures they contain. * 6. 0 Works Cited 6. 0 Works Cited Market Research portal http//www. marketresearch. com/Mintel-International-Group-Ltd-v614/American-Families-Dining-6166418/ Restaurant. org http//www. restaurant. org/tools/magazines/rusa/magarchive/year/clause/? articleid=138 Wikipedia http//en. wikipedia. org/wiki/American_upper_class Ehow. com Soda-dispenser. com Coldtechcommercial. com Ebay tableschairsbarstools. com restaurant-services. com brightledsigns. com * * * 7. 0 Appendices 7. 0 Appendices * * NOTE Start this section at the top of a new page. This section of the budget proposal is where youll attach all of the back up materials that youve referenced in the preparation of your plan, and that is too detailed or extensive to be included in the body of the report. Use this page to separate the appendices from the text in the body of your report. Make certain that you update the table of contents to include the title of each exhibit in the appendix and its page number. 7. 1 Appendix 1 put a description here 7. 2 Appendix 1 put a description here 7. 3 Appendix 1 put a description here * *