After a trip to Bordeaux France you are considering opening a restaurant based on Restaurant L'Entrecote. You will offer a fixed menu of salad, steak and French fries. Your innovation is that you will use a bordelaise (red wine)sauce instead of a tarragon butter sauce. You plan to run the restaurant for two years and then retire. Start-up costs, to be incurred immediately, are $500,000. Start-up costs include kitchen equipment, kitchen supplies, renovations, furniture, fixtures, and the point-of-sales system. Assume that all of those assets are classified as 5-year property. The assets can be sold for $150,000 after two years.
You expect 100 diners per night. The restaurant will be open for 300 nights per year. The average diner orders food with a menu price of $35 and beverages with a menu price of $15. Food costs are 34% of the menu price and beverage costs are 50% of the menu price.
The nightly wages are $2,160 (for the chef, 5 kitchen staff, a bartender, the Maitre d' and 10 wait staff). Municipal tax, rent, and utilities, are $41,400 per annum.
Assume that all revenues and operating expenses are received (paid)at the end of each year.
The small business tax rate is 20%. The cost of capital is 10%.
When the restaurant opens you will have to invest in an inventory of wine, beer and liquor costing $50,000. What is initial cash flow for the L'Entrecote project?
MACRS Depreciation Rates
$$\begin{array} { | c | c | r | }
\hline \text { Year } & \text { 3-Year } & \text { 5-Year } \
\hline 1 & 33.33 \% & 20.00 \% \
\hline 2 & 44.45 \% & 32.00 \% \
\hline
\end{array}$$

Question

After a trip to Bordeaux France you are considering opening a restaurant based on Restaurant L'Entrecote. You will offer a fixed menu of salad, steak and French fries. Your innovation is that you will use a bordelaise (red wine)sauce instead of a tarragon butter sauce. You plan to run the restaurant for two years and then retire. Start-up costs, to be incurred immediately, are $500,000. Start-up costs include kitchen equipment, kitchen supplies, renovations, furniture, fixtures, and the point-of-sales system. Assume that all of those assets are classified as 5-year property. The assets can be sold for $150,000 after two years.
You expect 100 diners per night. The restaurant will be open for 300 nights per year. The average diner orders food with a menu price of $35 and beverages with a menu price of $15. Food costs are 34% of the menu price and beverage costs are 50% of the menu price.
The nightly wages are $2,160 (for the chef, 5 kitchen staff, a bartender, the Maitre d' and 10 wait staff). Municipal tax, rent, and utilities, are $41,400 per annum.
Assume that all revenues and operating expenses are received (paid)at the end of each year.
The small business tax rate is 20%. The cost of capital is 10%.
When the restaurant opens you will have to invest in an inventory of wine, beer and liquor costing $50,000. What is initial cash flow for the L'Entrecote project?
MACRS Depreciation Rates
$$\begin{array} { | c | c | r | } 
\hline \text { Year } & \text { 3-Year } & \text { 5-Year } \
\hline 1 & 33.33 \% & 20.00 \% \
\hline 2 & 44.45 \% & 32.00 \% \
\hline
\end{array}$$

Quizplus · Accepted Answer

The initial cash flow includes the start-up costs of $500,000 and the initial inventory investment of $50,000, totaling $550,000.

After a Trip to Bordeaux France You Are Considering Opening