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Farmville Regional Airport is modernizing its terminal facilities in anticipation of significant growth in the number of passengers using the airport. A consultants study commissioned by the airports board predicts that the number of passengers using the airport will increase by 10% per year for the next 4 years as a result of a low-cost airline opening new routes to and from the airport. Currently, the airport terminal has only one food outlet selling sandwiches and drinks. To improve the terminal amenities available to customers, the airport board is considering opening an additional restaurant that will sell a range of hot food and drinks. The cost of outfitting the new restaurant space, which will have to be completely refurbished in four years, is $365,400. The restaurants equipment and furnishings are expected to have a salvage value of $31,750 at the time of the refurbishment. The consultants study reported the following information concerning expected revenue and costs for the new restaurant: Average revenue per customer: $9 Average variable cost per customer: $5 Customers per day in year 1: 1,000 Number of employees years 1 and 2: 4 Number of employees years 3 and 4: 5 Average annual employee salary: $20,350 Fixed annual cash operating costs: $74,000 Future customer demand for the new restaurant will increase by 10% each year for the next four years. The current cold food outlet has an average contribution margin of $3 per customer. If the new hot food restaurant is not opened, it is expected that the cold food outlet will sell to 2,000 customers per day in year 1, with the number of customers increasing by 10% per year in the subsequent three years. If the new hot food restaurant is opened, the consultants report predicts the number of customers served at the cold food outlet will be 50% lower than without the restaurant in year 1. Thereafter, the number of customers would increase by 10% per year. The airport operates 365 days per year, and the airport board uses an 9% discount rate to evaluate projects of this type.

Calculate the annual contribution margin generated by the proposed hot food restaurant.

Year 1

Year 2

Year 3

Year 4

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