A New Restaurant Is Ready to Open for Business

question 24

Essay

A new restaurant is ready to open for business. It is estimated that the food costs (variable cost) will be 30% of sales, while fixed costs will be $540,000. The first year's sales estimates are $1,500,000. 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 9%, or b) all equity financing. Common stock can be sold at $5 per share.
a) Compute the operating break-even point in dollars (excluding startup costs in year one).
b) Compute DOL at the end of the first projected year.
c) Compute DFL and DCL for both financing plans at the end of the first projected year.

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Definitions:

Internal Conditions

Factors or states within an organism or system that influence its functioning or status.

External Conditions

Factors outside an individual that can affect their behavior or performance.

Human Development

The interdisciplinary examination of individuals' growth and transformation throughout their lifespan, focusing on physical, mental, and socio-emotional aspects.

Change

The process or occurrence of becoming different in some particular way, without permanently losing one's identity or essence.