BUDGET PROPOSAL FROM YEAR 1 TO YEAR 5 PAPA GEO BUDGET PROPOSAL FROM YEAR 1 TO YEAR 5

EXECUTIVE SUMMARY Papa Geo plans to open a new restaurant to cater the needs of families and neighborhood. Gaming arena for children 10 year start up loan Aim is to make an income of $40,000 per annum starting from year 2 Restaurant will be operational whole week from 10 am to 9 pm.

Sales Forecast Selling price per unit is $7 Budgeted sales: Year 1: $130,300 Year 2: $149,845 Year 3: $161,832 Year 4: $174,778 Year 5: $188,760 Selling price per unit will be $7. The area within fifteen minutes of the store has around 10,000 families and an average family consists of 4 people which make it approximately 40,000 people living in the area. It has been assumed that people from outside this radius and tourists will also visit the restaurant and they have also been taken into account. The menu items will be pizzas of different sizes, buffet, salad and deserts. The Estimated weekly sales in the first year will be around $ 2505.9 and the first year sales have been obtained by multiplying this figure by the number of weeks which are 52. The quarterly and year 2 sales forecast have been increased by assuming that the restaurant’s customers would increase due to its popularity and by other offers such coupons and advertising.

Methods and assumptions Visited several websites similar to Papa Geo’s restaurant mo It has been assumed that 51 people on average will visit the restaurant everyday. The year 2 sales will increase due to the increasing popularity of the restaurant. Main target of the restaurant are middle to lower middle class families.

Capital Expenditure Total fixed assets per year: Year 1: 270,800 The amount of land and capital will only be incurred in the first year due to its nature. Until or unless the business decides to expand, the amount will remain the same in the years to come. Since this is a one-time investment, the budget in the first year seems to hit high.

Investment Analysis Cash flow Year 1: 483,768 Year 2:305,426 Total payback period: 3.722 years The sales figures are derived from the sales forecast sheet and the amount of the loan is an assumed figure that will help start up the business. The amount $200,000 indicates the owners capital which he invested in the business. Health insurance and insurance will remain constant during the 5 years. The manager will have an annual salary of $50000, in the first year and it will keep on increasing as the calculation shows. As far as the employees are concerned, 5 employees will be paid $6 per hour for 11 hours (7days a week) with two holidays in a year (363 days). Each year the number of employees will rise and so will the per hour wage rate. In case of Papa Geo’s, the project will take almost 3 years to payback.

Investment Analysis (continued) Rate of return: ARR:2.36 IRR:.4134 NPV Analysis: Net present value:405.73 The calculations show a positive 2.36 ARR which shows that on an average the business is making twice as more profit. IRR (internal rate of return) on the other hand is the interest rate at which NPV of all the cash flows is equal to zero. To put it simply, the IRR measures the attractiveness of a project, it also acts as a reminder for people who are not sure about investing in the project or not. If the IRR of a company is greater than its required rate of return, the investment should be made. In the case of Papa Geo’s, the discount factor has been assumed to a 5.7%. Due to the negative balances in cash flows during the last two years, the present value of the cash flows in the last two years is negative as well. But since the restaurant had done well in the past two years the NPV came out to be 405.73

Conclusion Business is expected to grow every year The main target is middle and lower middle class families who are price conscious so it is expected that these families will visit the restaurant more frequently. The NPV of the restaurant is positive 405.73 which means it will generate more income. The restaurant will face some competition but price sensitive customers will prefer to eat from Papa Geo.