throughout his four years in college, ronald king worked at

Project Description:

throughout his four years in college, ronald king worked at the local beef burger restaurant in college city. although the working conditions were good and the pay was not bad, ron believed he could do a much better job of managing the restaurant than the current owner-manager. in particular, ron believed that the proper use of marketing campaigns and sales incentives, such as selling a second burger for a 25 percent discount, could increase annual sales by 50 percent.just before graduation in 2009, ron inherited $500,000 from his great uncle. he seriously considered buying the restaurant. it seemed like a good idea because he liked the town and its college atmosphere, knew the business, and always wanted to work for himself. he also knew that the current owner wanted to sell the restaurant and retire to florida. as part of a small business management course, ron developed the following income statement for the restaurant's 2008 operations:ron believed that the cost of food and supplies were all variable, the employee expenses and utilities were one-half variable and one-half fixed in 2008, and all other expenses were fixed. if ron purchased the restaurant and followed through on his plans, he believed there would be a 50 percent increase in unit sales volume and all variable costs. of the fixed costs, only advertising would increase by $12,000. the use of discounts and special promotions would, however, limit the increase in sales revenue to only 40 percent even though sales volume increased 50 percent.requireda. determine1. the current annual net cash inflow.2. the predicted annual net cash inflow if ron executes his plans and his assumptions are correct.b. ron believes his plan would produce equal net cash inflows during each of the next 15 years, the period remaining on a long-term lease for the land on which the restaurant is built. at the end of that time, the restaurant would have to be demolished at a predicted net cost of $80,000. assuming ron would otherwise invest the money in stock expected to yield 12 percent, determine the maximum amount he should pay for the restaurant.c. assume that ron accepts an offer from the current owner to buy the restaurant for $400,000. unfortunately, although the expected increase in sales volume does occur, customers make much more extensive use of the promotions than ron had anticipated. as a result, total sales revenues are 8 percent below projections. furthermore, to improve employee attitudes, ron gave a 10 percent raise immediately after purchasing the restaurant. reevaluate the initial decision using the actual sales revenue and the increase in labor costs, assuming conditions will remain unchanged over the remaining life of the project. was the investment decision a wise one? (round calculations to the nearest dollar.)d. ron can sell the restaurant to a large franchise operator for $300,000. alternatively, he believes that additional annual marketing expenditures and changes in promotions costing $20,000 per year could bring the sales revenues up to their original projections, with no other changes in costs. should ron sell the restaurant or keep it and make the additional expenditures? (round calculations to the nearest dollar.)
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Price Type: Negotiable

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