# finance mah work

His has to be done in a timely fashion

A quaint but well-established coffee shop, the Hot New CafÃ©, wants to build a new cafÃ© for increased capacity. Itâ€™s expected sales are \$800,000 for the first 5 years. Direct costs including labor and materials will be 50% of sales. Indirect costs are estimated at \$100,000 a year. The cost of the building for the new cafe will be a total of \$750,000, which will be depreciated straight line over the next 5 years. The firm’s marginal tax rate is 37%, and its cost of capital is 12%.

For this assignment, you need to develop a capital budget. It is important to know what the cafÃ© managers should consider within their capital budget. You must also define the key terms necessary to understand capital budgeting. In this assignment, please show all work, including formulae and calculations used to arrive at financial values. You must answer the following:

• Using the information in the assignment description:
• Prepare a capital budget for the Hot New CafÃ© with the net cash flows for this project over a 5-year period.
• Calculate the payback period (P/B) and the net present value (NPV) for the project.
• Answer the following questions based on your P/B and NPV calculations:
• Do you think the project should be accepted? Why?
• Define and describe Net Present Value (NPV) as it pertains to the new cafÃ©.
• Define payback period. Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years. Do you think the project should be accepted? Why?

Your submitted assignment (125 points) must include the following:

• A double-spaced Word document of 1â€“2 pages that contains answers to the word questions.
• Either the Word document or the Excel spreadsheet must have all of your calculation values, your complete calculations, any formulae that you used, the sources you wish to cite, and your answers to the questions listed in the assignment guidelines.

 Here are the rows for the Operating Cash Flow spreadsheet, and the columns are years 1 to 5: YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 Sales Revenue – DIRECT EXPENSES (50%) – INDIRECT EXPENSES GROSS INCOME TOTAL – Depreciation expenses Tax base TOTAL (before taxes) – taxes at 37% After Tax TOTAL + Depreciation recovery OPERATING NET CASH FLOW Big hint: USE THE COST OF CAPITAL PERCENTAGE ONLY TO DETERMINE WHICH PRESENT VALUE INTEREST FACTOR TO USE. Then we do a NPV calculation which is: NPV = initial investment + PV value of the cash flow PAYBACK APPROACH FOR THE HOMEWORK: FIRST PUT A COLUMN WITH YOUR INITIAL INVESTMENT, AND THEN SUBTRACT EACH YEAR’S NET CASH FLOWS TO DETERMINE WHEN YOU BREAK EVEN. INITIAL INVESTMENT NET CASH FLOWS NUMERICAL VALUE: YEAR 1 INITIAL INV – NET CASH FLOW YEAR 2 YEAR 3 YEAR 4 YEAR 5

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