Question

Find the:

1. Year 1 Revenue
2. Year 1 profit
3. Year 5 profit

Owner estimated that a restaurant could accommodate three sittings of up to 40 people over the dinner hour

The average spend would be $40 per person at dinner

Profit margin: 3%

Annual growth projections for the industry: 1.4%

Renovations would cost $400,000 to $500,000 (not sure if this info is needed)

Answer 1

It is assumed that the restaurant will function 365 days a year.

Number of people per sitting= 40

Number of sittings per day for dinner= 3

Average spend per dinner= $40

Therefore, Year 1 Revenue = 40*3*$40*365 = $ 1,752,000

Profit margin= 3%

Therefore, Year 1 Profit = Revenue* Profit margin= $ 1,752,000*3% = $ 52,560

Annual growth rate projected= 1.4%

Therefore, year 5 profit= Year 1 Profit * (1+growth rate )^5 = $ 52,560*(1+1.4%)^5

= $52,560* 1.071988 = $ 56,343.67

(Note: Renovations are accounted under assets, under property, plant & equipments. Hence the cost of renovations will not affect profit)