Calico Restaurants is planning to create a new online meals-to-order service and has estimated that creating itwill have the following effects on its operations: a. Annual revenues will increase from $800,000/year to$1,300,000/year, for the next 3 years. b. While the restaurant earns an EBITDA margin (EBITDA as percent ofsales) of 30% currently, it expects to earn an EBITDA margin of 40% on just its incremental online sales. c. Thetax rate is 20% and the appropriate cost of capital for online restaurant businesses is 12%. Assuming that therewill be an initial cost of $450,000 for creating the service, which will be depreciated straight line over 3 yearsto a salvage value of zero, estimate the NPV for the investment.a. 112,365b. 9,865C. -2,354d. 6,348

NPV is the most used method of capital budgeting based on time value of money and should be positive…

Answered: Calico Restaurants is planning to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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