Bryan Bessner has invested $1,400,000 in a restaurant. All of this should be considered his investment. He would like to see a 12% after-tax return on his investment this year. Bryan faces a personal tax rate of 38%.

There are many costs involved in running a restaurant. Estimates indicate that variable costs will use 76% of the revenue earned by the restaurant.

Fixed costs would be:

Salaries$450,000

Insurance. 35,000

License 25,000

Utilities 120,000

Also, depreciation on the restaurant building itself would be 10% of the buildings $900,000 current book value.

Part of Bryans investment (included in the $1,400,000 mentioned above) in the restaurant came through a bank loan of $180,000, on which he will be paying 6% interest this year.

REQUIRED:

a. Please calculate the total amount of revenue that this restaurant will need to earn this year, in order to meet all costs and allow for Bryans expected after-tax return. (18 marks)

b. Bryan is hoping to earn 35% of his revenue from lunches, and the rest of it from dinners. Please calculate how much revenue Bryan is expecting to earn from each meal period. (7 marks)