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Eatery

The document compares the financial projections of relocating an eatery to either Clg Road or Street A. It provides sales, costs, profit, and cash flow projections over 5 years for each location as well as assumptions. Based on the net present value of the after-tax cash inflows, which is Rs. 1,585,450.94 for Clg Road compared to continuing at Street A, it is recommended to relocate the eatery to Clg Road.

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Ishaan gupta
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37 views3 pages

Eatery

The document compares the financial projections of relocating an eatery to either Clg Road or Street A. It provides sales, costs, profit, and cash flow projections over 5 years for each location as well as assumptions. Based on the net present value of the after-tax cash inflows, which is Rs. 1,585,450.94 for Clg Road compared to continuing at Street A, it is recommended to relocate the eatery to Clg Road.

Uploaded by

Ishaan gupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Clg Road Street A

Site Study ₹ 200,000.00 -


Intitial refurb' ₹ 1,000,000.00 -
opportunity (lease_p.a) ₹ 120,000.00 ₹ 250,000.00
Bank loan @12% ₹ 1,000,000.00 -
25% of the customers at 'Street A' are retained.
Sales_p.a ₹ 2,100,000.00 ₹ 1,500,000.00
V.Cost _p.a ₹ 1,000,000.00 ₹ 1,100,000.00
Fixed Cost_p.a ₹ 150,000.00 ₹ 240,000.00
Tax rate 35%
Depreciation 20%
WACC 10%
Interest 12%

p&l incremental_1 incremental_2 incremental_3


Sales ₹ 2,100,000.00 ₹ 1,500,000.00 ₹ 600,000.00 ₹ 600,000.00 ₹ 600,000.00
V.Cost ₹ 1,000,000.00 ₹ 1,100,000.00 ₹ -100,000.00 ₹ -100,000.00 ₹ -100,000.00
Contribution ₹ 1,100,000.00 ₹ 400,000.00 ₹ 700,000.00 ₹ 700,000.00 ₹ 700,000.00
Fixed Cost ₹ 150,000.00 ₹ 240,000.00 ₹ -90,000.00 ₹ -90,000.00 ₹ -90,000.00
Interest ₹ 120,000.00 ₹ - ₹ 120,000.00 ₹ 96,000.00 ₹ 72,000.00
Depreciation @20% ₹ 200,000.00 ₹ - ₹ 200,000.00 ₹ 200,000.00 ₹ 200,000.00
Operating Profit before T ₹ 630,000.00 ₹ 160,000.00 ₹ 470,000.00 ₹ 494,000.00 ₹ 518,000.00
Lease rent rcvd' ₹ 250,000.00 ₹ 120,000.00 ₹ 130,000.00 ₹ 130,000.00 ₹ 130,000.00
Net Profit before Tax ₹ 880,000.00 ₹ 280,000.00 ₹ 600,000.00 ₹ 624,000.00 ₹ 648,000.00
Tax@35% ₹ 308,000.00 ₹ 98,000.00 ₹ 210,000.00 ₹ 218,400.00 ₹ 226,800.00
Net Profit after Tax ₹ 572,000.00 ₹ 182,000.00 ₹ 390,000.00 ₹ 405,600.00 ₹ 421,200.00
Cash flow after Tax ₹ 772,000.00 ₹ 182,000.00 ₹ 590,000.00 ₹ 605,600.00 ₹ 621,200.00

Present Value CASH FLOW 5 yrs


initial refurb' ₹ -1,000,000.00
Bank loan ₹ 1,000,000.00
After Tax Cash Inflows ₹ 2,343,608.30
Loan repayment ₹ -758,157.35
NPV ₹ 1,585,450.94

Based on NPV method it is advised to relocate the eatery to college road.


ASSUMPTIONS
1. There is no depreciation if the eatery continued its operations in Street A.
2. Even thought the site study costs and the fact that 25% of customers are from old store are important for o
decisions, they are not relavent for the matter under consideration
3. Loan is repaid in 5 years ( life of project)
4. WACC of 10% given in the question is used for calculations instead of the interest rate of 12% we are payin
decision is not affected even we use 12% in our calculations)
5. Opportunity costs ( lease rentals) are not subtracted from the cash flows as there are two assets and the im
is given in the incemental income statement.

incremental_4 incremental_5
₹ 600,000.00 ₹ 600,000.00
₹ -100,000.00 ₹ -100,000.00
₹ 700,000.00 ₹ 700,000.00
₹ -90,000.00 ₹ -90,000.00
₹ 48,000.00 ₹ 24,000.00
₹ 200,000.00 ₹ 200,000.00
₹ 542,000.00 ₹ 566,000.00
₹ 130,000.00 ₹ 130,000.00
₹ 672,000.00 ₹ 696,000.00
₹ 235,200.00 ₹ 243,600.00
₹ 436,800.00 ₹ 452,400.00
₹ 636,800.00 ₹ 652,400.00 working note for LOAN
PV factors @ 10% Principal repayment Interest
0 1 200000 ₹ 120,000.00
1 0.90909 200000 ₹ 96,000.00
2 0.82645 200000 ₹ 72,000.00
3 0.75131 200000 ₹ 48,000.00
4 0.68301 200000 ₹ 24,000.00
5 0.62092 758157.35388169
cummulative3.79079
A.
re from old store are important for other internal

he interest rate of 12% we are paying on capital. ( the

ws as there are two assets and the impact of the same

note for LOAN


Annual Pmts
₹ 320,000.00
₹ 296,000.00
₹ 272,000.00
₹ 248,000.00
₹ 224,000.00

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