A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 40% of sales, while fixed cost will be $450,000. The first year's sales estimates are $1,250,000. The cost to start up this restaurant will be $2,000,000. Two financing alternatives are being considered: (a) 50% equity financing and 50% debt at 12%, or (b) all equity financing. Common stock can be sold at $5 per share.
A) Compute break-even point.
B) Compute DOL.
C) Compute DFL and DCL for both financing plans.
D) Include an explanation of what your computations mean.

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The Answer of A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 40% of sales, while fixed cost will be $450,000. The first year's sales estimates are $1,250,000. The cost to start up this restaurant will be $2,000,000. Two financing alternatives are being considered: (a) 50% equity financing and 50% debt at 12%, or (b) all equity financing. Common stock can be sold at $5 per share.
A) Compute break-even point.
B) Compute DOL.
C) Compute DFL and DCL for both financing plans.
D) Include an explanation of what your computations mean.

A New Restaurant Is Ready to Open for Business