Question
JJ Asian Cuisine has been in the business for a while. They started selling Shanghai Hand pull noodles and Lamb Cumin. The business is going
JJ Asian Cuisine has been in the business for a while. They started selling Shanghai Hand pull noodles and Lamb Cumin. The business is going well with a very healthy cash flow. After Cons retirement, Jason and James have now been forced to make the following consideration.
option 1; opening an actual shop front. (Investment life 10 years)
They will continue selling frozen foods to supermarkets, local markets and directly online but they also want to utilise their brand name serving customers directly in their restaurant.
There are many commercial premises currently for lease on Clayton Road. They have managed to find one of suitable size, and location with good car parking around. They want to set up the business from scratch utilising their brand name.
They are willing to enter a ten-year lease for the premises and have estimated an initial outlay of $300,000 for kitchen equipment, restaurant furniture and refitting of the premises.
They currently have roughly $50,000 in their bank account and will therefore need to borrow another $250,000 at an 8% interest only loan, paid monthly, principal payable at the end of year 10.
New staff will be required under this option; additional chef and staff for waiting on tables, along with increases in promotional materials etc. See Proforma (Budgeted) Statements for estimated performance of shop front option.
option 2; recreate the same existing model in a different venue (Investment life 5 years)
They will need to recreate the same business model they are currently running, but in another location. Relocation costs are estimated at $50,000. The business will run the same way for the next five years at the same level as the year just passed (year 2021). Revenues and expenses assumed to remain the same over the next five years, as the year just passed. (see Income Statement 2021)
Jason and James has provided you with the following financial reports.
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