project

The group would need to: (1) brainstorm to identify the many facets (customer demand for services, costs, competition and other factors) which need to be considered in this decision; (2) identify the amount of initial investments, calculate future cash flows; (3) use capital budgeting techniques for evaluating this project. Three commonly used capital budgeting techniques are cash payback, net present value, and internal rate of return. - Cash payback - the expected period of time between the date of an investment and the recovery in cash of the amount invested. - Net present value - compares the amount to be invested with the present value of the net cash inflows. An interest rate is needed to determine the present value of future cash flows. Factors used in determining this rate include the risk of the investment, cost of obtaining funds, etc. - Internal rate of return - uses present value concepts to compute the rate of return from a capital investment proposal. (4) use these capital budgeting analytical tools to arrive at an answer, the initial investment needed, future cash flows, calculate NPV and IRR, how long it would take to get the project payback. Questions for brainstorming: 1. How many people will use the coffee shop daily (do not forget about summer months)? How many students at university? What is the number of staff? 2. What times during the day the service will work? 3. What will be anticipated daily demand? 4. How much the rent will cost? How much is needed for equipment? 5. What is the maintenance cost expected to be? 6. How will the coffee shop be staffed? What will be employee cost? 7. Where the coffee shop will be located? 8. How the project will be financed? 9. How many days a week will the service be in operation? 10. What should the profit/return be? 11. For what period of time should the analyses be performed