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1. Cover page
4. Note risks and opportunities associated with each investment. These could be
noted from the text below or researched by you and included in the report.
Investment Opportunities
Payback, Net present value, Cash Flow spreadsheet, internal rate of return and Modified
Internal Rate of Return methods Throwdown! With Bobby Flay, Inc., led by CEO and
Celebrity Chef Bobby Flay and his management team are looking to expand their Restaurant
empire in the United States. They are looking at buying iconic restaurant(s) and capitalizing on
the Bobby Flay celebrity chef name to increase revenue. Three landmark restaurants have been
identified to the management team. The locations are in New York City, New Orleans and
Denver. Bobby Flay would like you to evaluate these three potential capital investments for
them. While all three eateries present Flay with a unique opportunity in the marketplace it
serves, the capital budget has been limited to $25 million due to a fear of over expanding beyond
their internal restaurant infrastructure. CEO Bobby Flay has hired you to do the Capital
Budgeting analysis on the three ionic restaurant opportunities below. All projects must exceed
Flay’s cost of capital. Flay requires a five-year outlook on their investments. Flay expects a
thorough analysis with a solid recommendation on what Throwdown!, With Bobby Flay, Inc.
should do. There has been an increasing demand for excellent high end food. Flay fancies
himself as the world’s premier chef. He is now on a mission to add one or two famous United
States restaurants to his empire. “I am rich, arrogant, a great chef and good looking. There is
money to be made!”
1. 21 Club located at 21 West 52nd Street, New York City, NY – Flay management is
excited about investing in this awesome restaurant. It is an American Icon of the
famous and wealthy! Heck, their list of guests includes Gerald/Betty Ford, Richard
Nixon, Bill Clinton, George/Barbara Bush, Donald Trump, George Clooney, Barbara
Walters, Jerry Jones, Frank Sinatra, and numerous other rich and famous people! This
eatery opened on January 1, 1930 and has been going strong since. It survived
Prohibition as a popular speakeasy with its disappearing bar and secret wine cellar to
hide the illegal liquor from the Feds. Flay estimates achieving a 30% Gross Profit
Margin after subtracting his cost of food and beverages. With the economy growing and
Manhattan being chic right now, high end food restaurant demand is rising. However,
CEO Flay, cautions that this might not be sustainable as new restaurants are popping up
everywhere and customers are all about being trendy in New York. He forecasts Year 1
guest count at 132,000. He is also confident that he can achieve a Year 1 average guest
check of $121. The 2016 Earnings Before Depreciation and Taxes are forecast at 25%
of Revenue each year. He projects that in Years 2 – 5 he can increase his EBDT by 6%
a year by increasing guest count and average guest check. Flay will negotiate a
purchase price of $11.5M to be taken over 15 years MACRS. CEO Bobby Flay is
excited about this trend setting Manhattan eatery!
Flay wants to know which restaurant(s) they should be investing in for the long-term. They
have asked you to analyze the three business opportunities identified above. Marketing has
adjusted the sales revenue projections for each of the three alternatives presented above to
account for risk.
The Earnings Before Depreciation and Taxes (EBDT) are projected as follows:
A. Calculate and present the Cash flow spreadsheet, Net Present Value, Internal Rate of
Return, MIRR and payback method calculations for evaluating each investment.
Each investment scenario should have its’ own PowerPoint slide.
Payback Period:
C. Show one slide with your recommendation, noting potential opportunities and risks.
Be clear on your recommendation with written supporting analysis.