Andre Mendes was working for a large chain of fast-food restaurant but was recently made redundant. He is now planning to put his years of experience as a restaurant manager and open his own restaurant specially targeted at vegetarians and vegans. He commissioned a market survey to estimate the level of demand (sales) for his restaurant. The cost of the market survey was 38,000 which has not yet been paid. The market survey indicated that there are good chances that the restaurant will be a success. The expected costs and revenues relating to the restaurant are as follows. Annual revenues Probability 580,000 0.15 745,000 0.55 840,000 0.30 Sales revenue will go up by 5% per year resulting from food price rises. Costs: i. Andre expects his gross profit margin to be 48%. ii. A ten-year lease premium for the premises in which to set up the restaurant and ample parking for customers payable at the start is 310,000. iii. Equipment, and furniture and decoration costs for the restaurant are estimated at 145,000 payable at the start. iv. There will be an injection of working capital of 27,000 at the start. This will be recovered at the end of year 5. v. Annual staff costs are expected to be 175,000 in the first year and expected to increase by 3% per year due to inflation. vi. Other fixed overheads (rent/utilities/insurance/ etc.) will be 106,400 per year. Fixed overheads are expected to increase by 2.5% per year. vii. A minor upgrade of the furniture in the restaurant will need to be made in year 4 at a cost of 86,000. viii. Andre would expect a return on capital invested of at least 9%. ix. Andre would expect the restaurant as a going concern to be worth around 500,000 at which time he plans to sell up and retire to sunny Spain. x. Ignore taxation

Evaluate the viability of the project based on Net Present Value analysis, and state whether Andre should open this restaurant.