Follow the instructions below.
New Project Analysis:
You are the analyst for a Pistol Pete’s Pizza Palace, a restaurant that is thinking of expanding their business to include catering for at least the next three years.
To take on this project, the restaurant would need to purchase a van to transport food to customer locations. The price of the van is $40,000, and there would be a customization expense of $10,000 to modify the van for this special use.
The vehicle would be depreciated using the 3-year MACRS schedule (33%, 45%, 15% and 7%) and be sold at the end of 3 years for $5,000.
This project would increase sales by $25,000 annually and increase food costs by $5,000. There would also be an increase in net operating working capital of $3,000.The restaurant’s current tax rate is 40%, and their WACC is 10%.
Based on the Capital Budgeting Techniques what should the restaurant expand their business to include catering services? Why or why not?
Once you have calculated the cash flows for this project, you will also need to calculate the project’s payback period, discounted payback period, NPV, IRR and MIRR. [provide cash flow statement]
Now assume the restaurant's WACC falls to 7.5% and calculate the NPV, IRR, MIRR, payback period and payback period.
THIS REQUIRES A MINI INCOME STATEMENT AND AN CASH FLOW STATEMENT.