TIME VALUE OF MONEY APPLICATIONS 283 Siesta Restaurant Operating Results (000) 2002 2003 2004 Rent Total $660,000 in exchange for 20% ownership in the project. Revenue 2005 Food 2006 $900 Beverage $925 350 $950 $975 Total 360 $1,000 1,250 365 370 1,285 375 1,315 Operating expenses 1,345 1,375 Food cost 240 Beverage cost 255 270 50 285 300 Labor cost 53 54 550 57 60 Travel 585 615 120 650 685 120 Marketing 120 120 60 120 50 Utilities 40 60 20 10 65 70 75 80 160 162 163 165 1,240 150 1,290 1,332 1,372 1,405 Operating Profit (Loss) $10 $(5) $(17) $(27) $(30) Based on Paris's market analysis, tour of the competition, inspection of the subject property, and interviews with the prior owner, she concludes a Star Restaurant would work in the subject space, but it would require approximately $200,000 of renovation and conversion cost in addition to the land purchase price of $2,000,000. By Year 5, the restaurant could generate $2.5 million in annual food revenue and $1.5 million in annual beverage revenue. Ms. Brown estimates the following cash flows for the first five years of operations, with cash flows leveling off in Year 5. Cash Flow $695,000 876,250 1,057,500 1,238,750 1,420,000 Calculate the IRR and NPV of this project utilizing a 12% discount rate and a 15% cap rate. Ms. Brown was able to secure a loan for $1,540,000, and an equity investor agreed to invest the remaining Year 1 2 3 4 5 1