CHAPTER 8 Key Concept Questions

1. Given the following data, on a separate sheet of paper create monthly and yearly income statements for this fast-food restaurant in New York City:

a. Sales for the month of June were $300,000. Sales for the year were $2,600,000.

b. The sum of $66,000 was spent on food in June (it was $792,000 for the year). The restaurant spent $9,000 on paper to wrap food items in June and $108,000 for the year.

c. Taxes for June were $15,000. For the year, they were $233,000.

d. Fixed operating costs for June were $175,000. For the year, they were $1,000,000.

e. Use Excel or other software to create a graph showing the monthly and yearly income statements for this business.

2. If the owner of this fast-food restaurant invested $300,000 in start-up costs, what was his ROI for the year? (Assume June as average.)

3. Calculate the financial ratios (ROI and ROS) for the monthly and the yearly income statement. What do the financial ratios tell you about this business?

4. What would the profit before taxes be if the owner found a paper supplier that charged only $100,000 for the year?

5. What would the profit margin for the year be in that case?

6. Suppose you wanted to raise profits by $5,000 a month. What would you do, and why?

7. State the financial equation for the balance sheet in three different ways

8. How is depreciation treated on the balance sheet and what is the logic behind this treatment?