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The coffee shop chain already offers 3 types of drinks, each comes in 2 sizes. The coffee shop wants to add a breakfast sandwich and chicken nuggets....
The coffee shop chain already offers 3 types of drinks, each comes in 2 sizes. The coffee shop wants to add a breakfast sandwich and chicken nuggets. Current sales information of the existing drinks and estimated sales information for new foods according to the marketing consultant are:
Unit Price sales
Small Hot Chocolate Large Hot Chocolate Breakfast Sandwich Chicken Nuggets
$2.50 500,000 $3.50 350,000 $2.00 120,000 $2.70 100,000 $3.00 100,000 $3.70 80,000 $4.50 50,000 (estimate) $5.00 60,000 (estimate)
- 2) Marketing consultant thinks that the market for the existing drinks is mature and the unit sales will not grow anymore. However, he believes that the sales of the 2 new products will grow by 5% per year for the next 10 years.
- 3) The company plans to increase the prices (for both the existing and new products) at the inflation rate which is estimated to be 2% over the next 10 years.
- 4) Looking at the financial statements of the company you estimate that average production cost (raw material, labor and ...) is 40% of the revenue.
- 5) To add the food business line, the company has to hire a food manager whose salary will be $90,000 for the first year plus %28 overhead costs (insurance, retirement, benefits, ...). Her salary will increase by inflation rate over the next 10 years.
- 6) The company pays $100,000 rent for its branches. The rent will increase by inflation rate every year.
- 7) The company paid $45,000 to its marketing consultant for providing all the marketing related information. You'll also charge the company $60,000 for your financial advice.
- 8) The company needs to buy new equipment for its branches to lunch the food business. The equipment plus the installation costs would sum up to $1,000,000. The company uses MACRS depreciation and the salvage value of the equipment after 10 years is estimated to be $50,000.
- 9) The company also has to invest 10% of its estimated first year production cost in working capital which will be recovered at the end of the 10-year period.
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- 10) Looking at the financial information of the company you realize that he company's capital structure consists of 40% equity, 20% preferred stock and 40% common stock. All figures were calculated using market value.
- 11) Thecompanyhasonlyonebondoutstandingthatmaturesin10years.Ithas8%couponratewith annual coupon payment and $1000 face value. The bond currently trades at $920.
- 12) The company's preferred stock pays $4 dividend per year and currently trades at $40 per share. Assume there is no floatation costs.
- 13) Looking at yahoo.finance.com, you see that the beta of the company is 0.9. As a financial analyst, your estimate for the risk-free rate and the expected return on the market are 3% and 12% respectively.
- 14) The company has a 30% marginal tax rate.