A quaint but well established coffee shop wants to build a new

| June 5, 2016

Question
A quaint but well established coffee shop wants to build a new café for increased capacity it is expected sales are 800,000 for the first five years direct cost 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 café will be 750,000 which will be depreciated straight line over the next five years. The firms marginal tax rate is 37% and its cost of capital is 12%.

o Prepare a capital budget for the Hot New Café with the net cash flows for this project over a 5-year period.
o Calculate the payback period (P/B) and the net present value (NPV) for the project.
o 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 café.
 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 must include the following:
• A double-spaced Word document of 1–2 pages that contains answers to the word questions.
• You must include a Microsoft Excel spreadsheet for your calculations.
• 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.

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