A quaint but well established cafe shoppe in the new hot cafe wants to build a new cafe for increased capicity it expect sales are $800,000.00 for the first 5 years, direct cost including labor and material 50% for new cafe will be totaled at $750,000.00 which will depreciate straight line over 5 yrs the firms tax rate is 37% and cost at 12%
What do you have against punctuation and capitalization? Standard English is much easier to read than the gibberish you posted.
To analyze the financial implications of building a new cafe, we need to calculate the net cash flow, depreciation expense, tax effects, and cost of capital.
1. Net Cash Flow Calculation:
Net Cash Flow = Sales - Direct Cost - Depreciation
Given:
Sales = $800,000.00
Direct Cost (including labor and material) = 50% of $800,000.00 = $400,000.00
Net Cash Flow = $800,000.00 - $400,000.00 - Depreciation
2. Depreciation Calculation:
The cost of the new cafe is $750,000.00, and it will depreciate straight-line over 5 years.
Annual Depreciation Expense = Cost / Useful Life
Annual Depreciation Expense = $750,000.00 / 5 = $150,000.00
3. Tax Effects:
The firm's tax rate is 37%.
Tax Expense = Tax Rate * (Sales - Direct Cost - Depreciation)
Tax Expense = 0.37 * (Sales - Direct Cost - Depreciation)
4. Cost of Capital:
The cost of capital is given as 12%.
5. Calculate the Net Present Value (NPV):
To calculate NPV, we need to discount the net cash flows to their present value using the cost of capital.
NPV = Net Cash Flow / (1 + Cost of Capital)^n [Where 'n' is the year]
Calculate the NPVs for each year (0 to 5) and sum them to obtain the total NPV.
By applying these calculations, we can determine the financial implications of building the new cafe and whether it is a financially viable decision.