A friend of yours has been a chef for sometime and has been working for a large restaurant chain. She thinks that instead of working the way she has been for the past few years she can start a catering business, that she intends to call "Gourmet Catering." She has been compiling data and putting together a business plan and has enlisted your help to build a pro-forma financial statement for her venture. Her research is summarized in the spreadsheet attached. Based on her experience, she expects to charge $15 per plate initially, but expects to raise prices at a rate of 2.5% annually. She has forecast how many orders she will receive each year and how much cash she needs on hand (see spreadsheet). She also made the following assumptions:

Tax rate 35%

COGS (% of sales) 70%

SG&A (% of sales) 15%

Accts Rec (% of sales) 8%

Inventory (% of sales) 14%; initially $4500

Accts Payable (% of sales) 8%; initially $2500

Discount rate 15%

PP&E lifespan (in years) is 10, Initially $155,000

If after 6 years you can liquidate assets at book value, calculate the NPV of the project. Based on your calculation what do you advise your friend to do?

Year Revenue per transaction Number of transactions INCOME STATEMENT ITEMS Total revenue Cost of goods sold SG&A expenses Depreciation Pre-tax profit (EBIT) BALANCE SHEET ITEMS Cash Accounts Rec. Inventory Gross P&E Net P&E Total Assets Accounts Payable 0 4 6 15.00 55,000