8. You have determined in your mind that you would like to have a business of your own, although
your father runs a family restaurant in your local city. You have therefore, decided to have a medium
size snack and cocktails bar which will accommodate the cruise ship passengers who visit your city.
You plan to keep the business for five years after which you will sell it off to your brother John for
$2,000,000 and go off to do your Master’s Degree in the UK. Since you will be occupying the
establishment from your grandmother for free, you have decided that you need to make some
improvements to the property which will cost you $1,500,000. Additionally you will spend $275,000
in bar stools, tables and decorations. The Leasing of such a space in the area would cost $75,000 per
year. You will depreciate the assets over 7 years using MACRS. You have determined that you would
need an average cash balance of $15,000 and inventory of $20,000 while Accounts payable should
average $10,000. You plan to borrow the money from a local bank and pay interest at a rate of 15
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- Spring '17
- Ellen Zitani
- Net Present Value, Generally Accepted Accounting Principles, Internal rate of return, average cash balance
