Jonathan Lark's lifelong dream is to own a restaurant. He owns a premium site for a restaurant across the street from the local university. Now he needs to decide what kind of restaurant to open.

Recently, Jonathan began to investigate one of the fastest-growing fast-food franchises in the country, Pepper Roni Pizza. A Pepper Roni Pizza franchise costs $72,900, an amount that is amortized over 15 years. As a franchisee, 

Jonathan would need to adhere to the company's building specifications. The building would cost an estimated $1,093,500 and would have a $121,500 salvage value at the end of its 15-year life. The restaurant equipment 

(fryers, steam tables, booths, counters) is sold as a package by the corporate office at a cost of $486,000, will have a salvage value of $24,300 at the end of its five-year life, and must be replaced every five years.

 

Jonathan estimates the annual revenue from a Pepper Roni Pizza franchise at $2,308,500. Food costs typically run 36% of revenue. Annual operating expenses, not including depreciation, total $1,032,750. For financial reporting 

purposes, Jonathan will use straight-line depreciation and amortization. Based on past experience, he uses an 16% discount rate.

 

1) Calculate the restaurant's net present value over the franchise's 15-year life.(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

Net present value

2) Use Excel or a similar spreadsheet application to calculate the restaurant's internal rate of return over the franchise's 15-year life.(Round answer to 2 decimal places, e.g. 15.25%.)

Internal rate of return

Answer rating: 100% (QA)

Jonathans Restaurant Analysis 1 Net Present Value NPV Year Cash Flow Discount Factor 16 Present Valu... View the full answer