Question
You are considering opening a Boba store in Downtown Disney called Bibbidi-Bobbidi-Boba. You already paid $110,000 getting your menu and recipes completed. If you start
You are considering opening a Boba store in Downtown Disney called Bibbidi-Bobbidi-Boba. You already paid $110,000 getting your menu and recipes completed. If you start the store, you believe you can sell 1 million drinks per year for $8 each. Each drink will cost you $4 of ingredient costs and you will also owe $1 per drink in licensing fees. You will have fixed expenses each year of $2 million. To start the store, you need to set aside $1 million today for inventory as well as $6 million today for fixed investments. You believe you will sell drinks for the next 6 years. If you fully recover the working capital at the end of the project, depreciate all of your incremental fixed investments to zero using straight line depreciation, have a tax rate of 40%, and the project has a discount rate of 5%, should you start selling the Boba (Numerical proof required for a correct answer)?
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