You have developed a chain of 20 cyber cafs with a gross margin of 80%. You maintain a cash near college campuses like Indiana, Duke, Berke- balance of 4% of sales for working capital purposes. ley and Harvard. Your business concept is to serve Accounts receivable and accounts payable are imjava to the budding revolutionaries, the caviar com- material. munists and limousine liberals that live in these The income tax rate is 35\%. You have a line vanguards of social change. Smoking is of course of credit at a bank that allows you to borrow up prohibited indoors, but outside your cafs the gen- to $3 million at an interest rate of 8%. You paid tle sweetness of clove cigarettes and patchouli scents a special dividend on Dec 31, 2015, but the bank the air. Marxist slogans are incorporated into the will not allow you to pay dividends if your line of names of chic, soy-based, mocha drinks. Com- credit is drawn down. puter terminals allow young manifesto writers to The most recent balance sheet and income statefind and comment upon the latest conspiracy the- ments are included at the end of the case. Use them ories. Gluten-free brownies are served. All coffees to answer the following questions: are fair-trade, their flavors untainted by globalism, that hideous scourge so often hoisted on the backs of the innocents by greedy, money-grubbing, war- Questions mongering agents of that hegemonic evil, corporate America. In spite of the fact that money is the root of all come statement, balance sheet and cash flow stateevil, you are highly profitable. You are expanding ment) for each of the years 2016 through 2020. the chain. You plan to add another 5 cafs each year for 1. How large was the dividend you paid on Dec. the next 4 years so that there will be 40 cafs in 31,2015 ? all. You lease the space for each caf for $30,000 2. Estimate the amount of financing you will per year and you spend $200,000 to build each caf need to meet your expansion plans assuming to your specifications. Construction for 2016 is on all of your projections are accurate. Assume schedule and you will have 25 cafs fully built by that this financing will take the form of a the end of the fiscal year. line of credit: e.g., you only need to borrow When a caf opens, the $200,000 expenditure as much as you need to balance the books is depreciated for tax purposes at 12.5% per year each year. straight line and at 10% per year straight line for book purposes. In addition, each caf has invento- 3. After you have built the pro formas, please ries of $50,000. You estimate that every caf you do the following: open adds $3,000 per year to your SG\&A expense. It takes 12 months to build out each caf during - Assume a growth rate of 3% and a diswhich you incur lease expenses (and the additional count rate of 15%. (Don't worry about SG\&A expenses) but earn no revenue at that site. where these numbers come from.) CalYou expect that, once a caf opens its doors, revculate the NPV of the revolutionary enenues flow at an anmual rate of $100.000 per caf, deavor. You should assume that the numbers of cafs fully operational, completed but not operating, and the annual revenues for each year are: Recall that it takes 12 months to build each caf and it produces no revenues during the year it is constructed, although rental ( $30,000 per caf) and incremental SG\&A ( $3,000 per caf) start when construction starts. Depreciation (book and tax) does not start until the caf produces revenues. For simplicity, assume that interest charge in year t is based on the balance of the bank loan at the end year t1. (L.e., if the bank loan for 2015 is $100, then the interest payment in 2016 is $8.) You have developed a chain of 20 cyber cafs with a gross margin of 80%. You maintain a cash near college campuses like Indiana, Duke, Berke- balance of 4% of sales for working capital purposes. ley and Harvard. Your business concept is to serve Accounts receivable and accounts payable are imjava to the budding revolutionaries, the caviar com- material. munists and limousine liberals that live in these The income tax rate is 35\%. You have a line vanguards of social change. Smoking is of course of credit at a bank that allows you to borrow up prohibited indoors, but outside your cafs the gen- to $3 million at an interest rate of 8%. You paid tle sweetness of clove cigarettes and patchouli scents a special dividend on Dec 31, 2015, but the bank the air. Marxist slogans are incorporated into the will not allow you to pay dividends if your line of names of chic, soy-based, mocha drinks. Com- credit is drawn down. puter terminals allow young manifesto writers to The most recent balance sheet and income statefind and comment upon the latest conspiracy the- ments are included at the end of the case. Use them ories. Gluten-free brownies are served. All coffees to answer the following questions: are fair-trade, their flavors untainted by globalism, that hideous scourge so often hoisted on the backs of the innocents by greedy, money-grubbing, war- Questions mongering agents of that hegemonic evil, corporate America. In spite of the fact that money is the root of all come statement, balance sheet and cash flow stateevil, you are highly profitable. You are expanding ment) for each of the years 2016 through 2020. the chain. You plan to add another 5 cafs each year for 1. How large was the dividend you paid on Dec. the next 4 years so that there will be 40 cafs in 31,2015 ? all. You lease the space for each caf for $30,000 2. Estimate the amount of financing you will per year and you spend $200,000 to build each caf need to meet your expansion plans assuming to your specifications. Construction for 2016 is on all of your projections are accurate. Assume schedule and you will have 25 cafs fully built by that this financing will take the form of a the end of the fiscal year. line of credit: e.g., you only need to borrow When a caf opens, the $200,000 expenditure as much as you need to balance the books is depreciated for tax purposes at 12.5% per year each year. straight line and at 10% per year straight line for book purposes. In addition, each caf has invento- 3. After you have built the pro formas, please ries of $50,000. You estimate that every caf you do the following: open adds $3,000 per year to your SG\&A expense. It takes 12 months to build out each caf during - Assume a growth rate of 3% and a diswhich you incur lease expenses (and the additional count rate of 15%. (Don't worry about SG\&A expenses) but earn no revenue at that site. where these numbers come from.) CalYou expect that, once a caf opens its doors, revculate the NPV of the revolutionary enenues flow at an anmual rate of $100.000 per caf, deavor. You should assume that the numbers of cafs fully operational, completed but not operating, and the annual revenues for each year are: Recall that it takes 12 months to build each caf and it produces no revenues during the year it is constructed, although rental ( $30,000 per caf) and incremental SG\&A ( $3,000 per caf) start when construction starts. Depreciation (book and tax) does not start until the caf produces revenues. For simplicity, assume that interest charge in year t is based on the balance of the bank loan at the end year t1. (L.e., if the bank loan for 2015 is $100, then the interest payment in 2016 is $8.)