Capital Budgeting Activity Scenario: Your client owns a successful restaurant in downtown Chicago (at least...
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Capital Budgeting Activity Scenario: Your client owns a successful restaurant in downtown Chicago (at least pre-Covid-19!). She wants to open a second restaurant in the suburbs and has asked you to help her choose between two locations.
Key information is listed below. Using the four capital budgeting methods that we know, prepare a presentation that shows your recommendation to your client (and why).
Initial Investment: 2,500,000 and use 9% discount rate
| FOREST PARK (10% TX RATE) | ROSEMONT (10.25% TX RATE) | |
| ANNUAL CASH FLOWS | $1,000,0000 | $1,100,000 |
| ANNUAL CASH OUTFLOWS | $400,000 | $650,000 |
| # OF YEARS EXPECTED USEFUL LIFE OF PROJECT | 25 | 30 |
Annual non-cash (all depreciation) expenses: Use straight line depreciation to find!
For both, assume no residual value and: 9% discount rate
REQUIREMENTS: Figure out which location your client should open their location at and explain how you got to each step. Additional MUST HAVES, include clearly identified calculations of the four capital budgeting methodologies (showing your work, not the work of Google or Excel programmers!) we have used in this module, and sufficient information on what these metrics mean, particularly as it relates to your preference decision.
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