U3

Variation : Petercity Cafe

You are starting a new type of Caf in Petercity which only serves organically grown coffee compliant with Fair Trade principles and practices. There are 12,000 people living in Petercity.

Research shows that 5% of the residents prefer this kind of coffee and that each will buy from you on average 10 cups a month at an average price of $4 per cup.

The rent of the caf is $6,000 per month. You need to have 3 people working at the caf (including you) each with average salary $3,000 per month.

Average cost of material (COGS) for preparing 1 cup of coffee is $0.4

You need to buy equipment and furniture for $30,000 and will also have to invest $10,000 for other preparations and the launch of your business. You decided to invest 20,000 from your own money in this company, and obtained a loan from the bank for $20,000 to cover the rest of the investment.

Utilities, maintenance, interest, depreciation and miscellaneous expenses total $3,000 per month.

Assume that you have capacity to serve all willing customers at Petercity and that you will not have any competition.

Q: Calculate sales, profits, ROI, ROE and breakeven point