You own a restaurant and are considering buying a liquor license. You estimate that it will cost you $200,000 to buy a five-year license and construct a bar and that you will generate $40,000 in after-tax cash flows each year for the next nine years. (The cost of the license is capitalized and the cash flows already reflect the depreciation). If your cost of capital is 15%, estimate the net present value of buying a liquor license. (There is no salvage value at the end of the 9th year). b. Assume now that the bar will bring in additional customers to your restaurant. If your after-tax operating margin is 60%, how much additional revenue would you have to generate each year in your restaurant for the liquor license to make economic sense?
You own a restaurant and are considering buying a liquor license. You estimate that it will cost you $200,000 to buy a five-year license and construct a bar and that you will generate $40,000 in after-tax cash flows each year for the next nine years. (The cost of the license is capitalized and the cash flows already reflect the
If your cost of capital is 15%, estimate the
b. Assume now that the bar will bring in additional customers to your restaurant. If your after-tax operating margin is 60%, how much additional revenue would you have to generate each year in your restaurant for the liquor license to make economic sense?
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