Restaurant Location Analysis and Investment

This assignment tasks students with analyzing two potential restaurant locations: London and Birmingham. Students must evaluate qualitative factors like market demand and competition, as well as quantitative aspects such as delivery costs and potential revenue. Utilizing investment appraisal methods like payback period, accounting rate of return, and net present value, students will justify their recommendation for the most suitable location based on financial viability and overall project potential.

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
1. Carrying out full investigation on investment on both projects, which includes payback
period, average rate of return and net present value:.................................................................2
2. Conducting breakeven analysis for the project and using the result in the assessment:........3
3. Analysing both quantitative and qualitative data for both the projects:.................................5
4. Making adequate judgement based on justification stating, which project could be chosen:6
Reference and Bibliography:......................................................................................................7

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1. Carrying out full investigation on investment on both projects, which includes
payback period, average rate of return and net present value:
Option A: Birmingham
Particulars Cash in Cash out Discount factor 8% Cash flow Cum-cash flow
Initial investment 100,000 1.00 (100,000) (100,000)
Year 1 50,000 32,500 0.93 17,500 (82,500)
Year 2 70,000 45,500 0.86 24,500 (58,000)
Year 3 150,000 97,500 0.79 52,500 (5,500)
Year 4 150,000 97,500 0.74 52,500 47,000
Year 5 150,000 97,500 0.68 52,500 99,500
Payback period 3.10
ARR 19.90%
Net present value 53,204.38
The overall evaluation of investment appraisal techniques relevantly helps in
identifying the viability of new project, which could in turn help in generating higher revenue
in long run. In addition, the payback period of Option A situated in Birmingham is mainly at
the levels of 3.1 years. Moreover, the accounting rate of return is at the levels of 19.90%,
which is identifying adequate profitability generated from operations (Baum and Crosby
2014). Lastly, the overall net present value of the project is mainly at the levels of
$53,204.38. This could eventually help in generating higher revenue from investment.
Option B: London
Particulars Cash in Cash out Discount factor 8% Cash flow Cum-cash flow

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Initial investment 175,000 1.00 (175,000) (175,000)
Year 1 50,000 32,500 0.93 17,500 (157,500)
Year 2 100,000 65,000 0.86 35,000 (122,500)
Year 3 250,000 162,500 0.79 87,500 (35,000)
Year 4 250,000 162,500 0.74 87,500 52,500
Year 5 250,000 162,500 0.68 87,500 140,000
Payback period 3.40
ARR 16.00%
Net present value 64,537.03
From the overall evaluation of above table investment appraisal techniques of Option
B present in London can be identified. The calculation of payback period is mainly at the
level of 3.4 years, which indicates the repayment that will be conducted by the project. In
addition, the accounting rate of return is mainly at the levels of 16%, whereas the net present
value is at $64,537.03. The evaluation of both table mainly helps in identifying the most
viable project, which could help in improving profitability and return. Option A is mainly
identified to be the most viable project, which could help Alex in improving return from
investment. Upton et al. (2015) mentioned that accounting rate of return is mainly used by
managers in evaluating performance of projects with different level of initial investment and
cash inflow.
2. Conducting breakeven analysis for the project and using the result in the assessment:
Option A: Birmingham
Particulars Value
Unit variable cost of 1 meal $ 1

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Average sales price of 1 meal $ 10
Fixed costs $ 2,000
Maximum monthly out put 1,500
Revenue $ 180,000
Variable cost $ 18,000
Contribution $ 162,000
Fixed cost $ 24,000
Breakeven in dollars $ 26,667
Breakeven in units 2,667 units
Option B: London
Particulars Value
Unit variable cost of 1 meal 2
Average sales price of 1 meal 12
Fixed costs 3,000
Maximum monthly out put 2,000
Revenue $ 288,000
Variable cost $ 48,000
Contribution $ 240,000
Fixed cost $ 36,000
Breakeven in dollars $ 43,200
Breakeven in units 3,600 units

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The above two tables mainly help in identifying the minimum breakeven units that is
needed by option A and option B for achieving no profit no loss. The overall requirements of
2,667 units are mainly needed for achieving no profit no loss. Moreover, the breakeven units
needed for option B is at the level so of 3,600 units. Therefore, from the evaluation option A
conducted in Birmingham is identified to be the most viable project, which needs only 2,667
unit’s sales to achieve breakeven sales. This could eventually help in improving profitability
and generate adequate returns. In this context, Kim et al. (2017) mentioned that breakeven
units are mainly used by companies to identify the overall minimum sales for achieving no
profit no loss. On the other hand, Morano and Tajani (2017) criticises that without conducting
adequate calculation, breakeven analysis will portray wrong value and hamper managerial
decision, which could increase risk from investment.
3. Analysing both quantitative and qualitative data for both the projects:
From the evaluation of quantitative data, option A needs to be considered by Alex, as
it is portraying the most viable option. In addition, the qualitative data mainly includes
location, local economy, suppliers, and competition. The evaluation of qualitative factors
could eventually help Alex in identifying the most viable option, which could help in
supporting activities of Alex. The evaluation of qualitative data for London mainly portrays
relevant problems, such as high competition, high delivering cost, and presence of diverse
restaurants in the location. On the other hand, Li and Trutnevyte (2017) criticises that
qualitative analysis main loses its friction if negative impact from external forces are
conducted on particular project.
However, after evaluating Birmingham location relevant positive qualitative data
could be identified. In addition, Alex would be able to reduce the overall delivering cost, as
cheap labour is present in the location. This could eventually help in reducing cost, which

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improves profitability and reduce cost of operations. The analysis of competition in
Birmingham location mainly indicates low presence of Caribbean Restaurants. This is mainly
a positive factor for Birmingham location, which could allow Alex in improving its
profitability by tapping into new market. The opening of Caribbean Restaurants could
eventually help Alex in generating higher revenue from operation, as there are no Caribbean
Restaurants present in Birmingham. Vesty and Oliver (2014) mentioned that evaluation of the
evaluation of qualitative analysis could directly help in detecting the actual financial
performance of particular projects.
4. Making adequate judgement based on justification stating, which project could be
chosen:
From the overall evaluation of both the projects, Option A can be adopted by Alex, as
it supports both qualitative and quantitative scenario. The project is a viable option, which
could eventually help Alex in penetrating the restaurant market in Birmingham. Moreover,
with the evaluation of investment appraisal techniques such as payback period, accounting
rate of return and net present value, option A is identified to be the most viable option for
Alex. Thus, Alex could increase its revenue and capture adequate restaurant market in
Birmingham.