A New Restaurant Is Ready to Open for Business

question 58

Essay

A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 40% of sales, while fixed cost will be $450,000. The first year's sales estimates are $1,250,000. The cost to start up this restaurant will be $2,000,000. Two financing alternatives are being considered: (a) 50% equity financing and 50% debt at 12%, or (b) all equity financing. Common stock can be sold at $5 per share.
A) Compute break-even point.
B) Compute DOL.
C) Compute DFL and DCL for both financing plans.
D) Include an explanation of what your computations mean.

• A) Compute break-even point.
• B) Compute DOL.
• C) Compute DFL and DCL for both financing plans.
• D) Include an explanation of what your computations mean.

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Definitions:

Gamma-aminobutyric Acid (GABA)

An inhibitory neurotransmitter in the brain that helps to regulate nerve excitability.

Inhibitory Neurotransmitter

A type of chemical messenger in the brain that reduces the likelihood of a neuron firing, thereby dampening neural activity.

Computerized Axial Tomography

A medical imaging technique that uses computer-processed combinations of many X-ray measurements taken from different angles to produce cross-sectional images of specific areas of a scanned object.

Three-dimensional Image

An image that provides the perception of depth, making objects in it appear to be in three dimensions.