Effect of a Start-Up Delay on Profitability: I just noticed a new restaurant in the shopping...
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Effect of a Start-Up Delay on Profitability: I just noticed a new restaurant in the shopping center near my home. The restaurant appears ready to open, but because of the COVID-19 epidemic, the opening is delayed. This (fictional) scenario presents projected cash flows for the restaurant as originally proposed (Scenario A) and in a delayed scenario (in which they delay opening the restaurant for one year) (Scenario B). The investors in the restaurant expect positive net value after two years of operation using a discount rate of 15%; otherwise, they may withdraw their funding. In this problem, ignore depreciation and taxes and any other cash flows not listed in the table. Cash Flow for Scenario A: Original Opening Date in 2020 year 2019 $1,000,000 Investment to equip restaurant Operating Expenses Fixed Expenses Revenues Investment to equip restaurant Operating Expenses Fixed Expenses $ Revenues 2020 560,000 $ 200,000 $ 1,400,000 Cash Flow for Scenario B: Delayed Opening Date to 2021 due to COVID-19 year 2020 2019 $1,000,000 100,000 2021 $ 672,000 $ 200,000 $1,680,000 2021 $ 560,000 $ 200,000 $ 1,400,000 2022 $ 672,000 $ 200,000 $ 1,680,000 Analyze both scenarios to determine their NPV. What is the decrease in NPV caused by the one-year delay? Effect of a Start-Up Delay on Profitability: I just noticed a new restaurant in the shopping center near my home. The restaurant appears ready to open, but because of the COVID-19 epidemic, the opening is delayed. This (fictional) scenario presents projected cash flows for the restaurant as originally proposed (Scenario A) and in a delayed scenario (in which they delay opening the restaurant for one year) (Scenario B). The investors in the restaurant expect positive net value after two years of operation using a discount rate of 15%; otherwise, they may withdraw their funding. In this problem, ignore depreciation and taxes and any other cash flows not listed in the table. Cash Flow for Scenario A: Original Opening Date in 2020 year 2019 $1,000,000 Investment to equip restaurant Operating Expenses Fixed Expenses Revenues Investment to equip restaurant Operating Expenses Fixed Expenses $ Revenues 2020 560,000 $ 200,000 $ 1,400,000 Cash Flow for Scenario B: Delayed Opening Date to 2021 due to COVID-19 year 2020 2019 $1,000,000 100,000 2021 $ 672,000 $ 200,000 $1,680,000 2021 $ 560,000 $ 200,000 $ 1,400,000 2022 $ 672,000 $ 200,000 $ 1,680,000 Analyze both scenarios to determine their NPV. What is the decrease in NPV caused by the one-year delay?
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To determine the Net Present Value NPV for each scenario and then compare them to find the decrease ... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
Posted Date:
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