Posted: December 30th, 2021
A quaint but well-established coffee shop, the Hot New Café, wants to build a new café for increased capacity. Consider the following financial aspects of this endeavor:
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 $200,000 a year.
The cost of the building for the new café will be a total of $850,000, which will be depreciated straight line over the next 5 years.
The firm’s marginal tax rate is 38%, and its cost of capital is 10%.
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