Financial Feasibility Simulation for BII 2050: Escapade by the Pool

This financial feasibility project analyzes 'Escapade by the Pool,' a Mediterranean fine-dining restaurant. It includes a detailed financial analysis spanning three years, encompassing profit and loss statements, depreciation schedules, and balance sheets. The project calculates key financial metrics such as contribution margin rate, break-even points, and cash flow statements. Furthermore, it explores financial planning aspects, including sources of finance, capital structure optimization, and financial leverage implications. The analysis evaluates the impact of financial plans on profitability through WACC calculations and discusses the significance of capital project planning, considering aspects like valet parking, kitchen location, and investment in crockery and labor costs. The project concludes with a discussion of long-term investment appraisal and its relevance to the restaurant's financial health.

A Financial Feasibility Simulation in a Food and Beverage Enterprise:
A case study on ‘Escapade by the Pool’.
Asmita Nayak (1875236)
Business Finance (BII 2050)

Introduction
Amor e Cibo is a Mediterranean fine-dining restaurant located in Pune. Facilitated with valet
parking service for almost 45+ cars, 60 covers and a full service bar, Amor e Cibo is situated
in the posh area of Pune, attracting all the high and upscale clientele which includes families,
businessmen and high class working millennials. Since Pune is still an upcoming
metropolitan city, the pricing of the menu is done accordingly to customer’s disposable
income in relevance to demographic factors. The special feature of the restaurant is the menu
customisation. The customer can choose any dish from the menu and it can be made to a
gluten-free, dairy-free, nut-free and other allergen-free options.

Section 1
(A) 1. Profit & Loss Statement for 3 years
Sales Revenue YR 1(2021) YR 2 (2022) YR 3 (2023)
Food Sales ₹ 86,00,130 ₹ 97,72,875 ₹ 96,08,625
Beverage Sales ₹ 44,30,370 ₹ 41,88,375 ₹ 51,73,875
Subtotal ₹ 1,30,30,500 ₹ 1,39,61,250 ₹ 1,47,82,500
Variable Cost
Food & Beverage
Cost ₹ 52,12,200 ₹ 55,84,500 ₹ 59,13,000
Labour Cost ₹ 39,09,150 ₹ 41,88,375 ₹ 36,95,625
Other Expenses ₹ 6,51,525 ₹ 6,98,065 ₹ 4,43,475
Subtotal ₹ 97,72,875 ₹ 1,04,70,940 ₹ 1,00,52,100
Contribution ₹ 32,57,625 ₹ 34,90,310 ₹ 47,30,400
Fixed Cost
Depreciation ₹ 8,30,000 ₹ 7,81,000 ₹ 6,97,700
Salaries ₹ 1,20,000 ₹ 1,20,000 ₹ 2,20,000
Maintenance ₹ 1,00,000 ₹ 1,00,000 ₹ 1,50,000
Electricity bill ₹ 80,000 ₹ 70,000 ₹ 1,00,000
Security Cost ₹ 1,50,000 ₹ 1,50,000 ₹ 1,50,000
Promotion & Advertising ₹ 3,00,000 ₹ 2,00,000 ₹ 3,00,000
Utilities ₹ 1,50,000 ₹ 1,00,000 ₹ 1,90,000
Legal Expense ₹ 1,50,000 ₹ 1,00,000 ₹ 1,00,000
subtotal ₹ 18,80,000 ₹ 16,21,000 ₹ 19,07,700
Operating Income ₹ 13,77,625 ₹ 18,69,310 ₹ 28,22,700
Interest ₹ 3,53,187 ₹ 3,53,187 ₹ 3,53,187
EBT ₹ 10,24,438 ₹ 15,16,123 ₹ 24,69,513
Income Tax ₹ 2,25,376 ₹ 3,33,547 ₹ 5,43,293
Net Income/loss ₹ 7,99,062 ₹ 11,82,576 ₹ 19,26,220
CMR 0.25 0.25 0.32
Breakeven Sales Revenue 75,20,000 ₹ 64,84,005 ₹ 59,61,562.50
Breakeven Cover 8,847 7,628 6,624
Breakeven Day 211 170 147

Depreciation Schedule
Depreciation Schedule 1st Year 2nd Year 3rd Year
Starting of the businessDepr % Depr Amt.Amt left Depr Amt Amt left Depr Amt Amt Left
Land 20,00,000 0% - 20,00,000 - 20,00,000 20,00,000
Building 20,00,000 10% 2,00,000 18,00,000 1,80,000 16,20,000 1,62,000 14,58,000
Kitchen Equipments 1,20,000 40% 48,000 72,000 28,800 43,200 17,280 25,920
Furniture & Fixtures 5,00,000 10% 50,000 4,50,000 45,000 4,05,000 40,500 3,64,500
Electronic Equipments 80,000 40% 32,000 48,000 19,200 28,800 11,520 17,280
Computer 50,000 40% 20,000 30,000 12,000 18,000 7,200 10,800
crockery 6,00,000 80% 4,80,000 1,20,000 1,24,000 1,14,800
Additional Crockery 5,00,000 4,50,000
Total Crockery 6,20,000 4,96,000 5,74,000 4,59,200
53,50,000 8,30,000 45,20,000 7,81,000 42,39,000 6,97,700 39,91,300
Sales Revenue Calculation
Year 1 Year 2 Year 3
Total Covers 60 60 60
Occupancy
Rate 70% 75% 75%
Total Covers
Sold Per day 70% of 60 = 42 Covers 75% of 60 = 45 Covers 75% of 60= 45 Covers
Average Per
Check Rs 850 Rs 850 Rs 900
Sales
Revenue of
one day
42 × 850 = 35,700 45 × 850 = 38,250 45 × 900 = 40,500
Sales
Revenue for
the year
35,700 × 365 =
1,30,30,500
38,250 × 365 =
1,39,61,250
40,500 × 365 =
1,47,82,500

(A) 2. Balance Sheet – Opening Balance Sheet
Opening Balance
Sheet
Liabilities & Capital Assets
Owner's Equity Fixed Assets
Capital Partner 1 34,00,000 Land 20,00,000
Capital Partner 2 20,00,000 Building 20,00,000
Total Owner's equity 54,00,000 Kitchen Equipments 1,20,000
Non-Current
Liabilities Furniture & Fixtures 5,00,000
Bank Loans 20,80,000 Electronic Equipments 80,000
Total non-current
liabilities 20,80,000 Computer 50,000
Current Liabilities Crockery & Cutlery 6,00,000
Accounts Payable Subtotal 53,50,000
Current Borrowing/
Loan
Total current
liabilities 0
Working Capital (3
months)= 21,30,000
Total Liabilities 20,80,000
(Variable cost + Fixed
cost)*3 /12
Total Liabilities &
Equity 74,80,000 Total Assets 74,80,000
Check TRUE

Closing Balance Sheet for 3 Years
1 YR (2021) 2 YR (2022) 3YR (2023)
Assets
Non-current Assets
Land ₹ 20,00,000 ₹ 20,00,000 ₹ 20,00,000
Building ₹ 18,00,000 ₹ 16,20,000 ₹ 14,58,000
Building Depreciation - 2,00,000₹ - 1,80,000₹ - 1,62,000₹
Kitchen Equipments ₹ 72,000 ₹ 43,200 ₹ 25,920
K.E Depreciation - 48,000₹ - 28,800₹ - 17,280₹
Furniture & Fixtures ₹ 4,50,000 ₹ 4,05,000 ₹ 3,64,500
F&F Depreciation - 50,000₹ - 45,000₹ - 40,500₹
Electronic Equipments ₹ 48,000 ₹ 28,800 ₹ 17,280
E.E Depreciation - 32,000₹ - 19,200₹ - 11,520₹
Computer ₹ 30,000 ₹ 18,000 ₹ 10,800
Computer Depreciation - 20,000₹ - 12,000₹ - 7,200₹
Crockrey & Cutlery ₹ 1,20,000 ₹ 1,24,000 ₹ 1,14,800
C & C Depreciation - 4,80,000₹ - 4,96,000₹ - 4,59,200₹
C & C for Next Year ₹ 5,00,000 ₹ 4,50,000 ₹ 5,00,000
Depreciation - 8,30,000₹ - 7,81,000₹ - 6,97,700₹
Total non current assets ₹ 50,20,000 ₹ 46,89,000 ₹ 44,91,300
Working Capital
Current Assets :
Cash & Cash Equivalent ₹ 9,84,675 ₹ 11,99,477 ₹ 12,74,623
Short term investments ₹ 10,00,000 ₹ 15,00,000 ₹ 20,00,000
Inventory ₹ 15,00,000 ₹ 20,00,000 ₹ 32,00,000
Total current assets ₹ 34,84,675 ₹ 46,99,477 ₹ 64,74,623
Total Assets ₹ 85,04,675 ₹ 93,88,477 ₹ 1,09,65,923
Liabilities & Equity
Owner's Equity
Angel Investors ₹ 20,00,000 ₹ 20,00,000 ₹ 20,00,000
Capital Partner 1 ₹ 34,00,000 ₹ 34,00,000 ₹ 34,00,000
Total owner's equity ₹ 54,00,000 ₹ 54,00,000 ₹ 54,00,000
Retained Earnings ₹ 7,99,062 ₹ 19,81,638 ₹ 39,07,858
Total Equity ₹ 61,99,062 ₹ 73,81,638 ₹ 93,07,858
Non-Current Liabilities
Bank Loans ₹ 18,31,226 ₹ 15,82,452 ₹ 13,33,678
Total non current liabilities ₹ 18,31,226 ₹ 15,82,452 ₹ 13,33,678
Current Liabilities
Accounts Payable ₹ 3,50,000 ₹ 3,00,000 ₹ 2,00,000
Current Borrowings/Loans ₹ 1,24,387 ₹ 1,24,387 ₹ 1,24,387
Total current liabilities ₹ 4,74,387 ₹ 4,24,387 ₹ 3,24,387
Total Liabilities ₹ 23,05,613 ₹ 20,06,839 ₹ 16,58,065
Total Liabilities & Equity ₹ 85,04,675 ₹ 93,88,477 ₹ 1,09,65,923
CHECK TRUE TRUE TRUE

(A) 3. Cash Flow Statement
Cash Flow Satement Yr 1 Yr 2
Cash Flow From Operating Activities
Net Income ₹ 11,82,576 ₹ 19,26,220
Addition back of non-cash expenses
Depreciation ₹ 7,81,000 ₹ 6,97,700
Increase/ Decrease in current liabilities Nil Nil
Increase/Decrease in Inventories - 5,00,000₹ - 12,00,000₹
Accounts Payable - 50,000₹ - 1,00,000₹
Cash provided (used) in operating
Activities ₹ 14,13,576 ₹ 13,23,920
Cash Flow From Investing Activities
Purchase of Short term investments - 5,00,000₹ - 5,00,000₹
Purchase of Crockery &Cutlery - 4,50,000₹ - 5,00,000₹
Cash provided (used) in Investing
Activities - 9,50,000₹ - 10,00,000₹
Cash Flow from Financing Activities
Increase/ Decrease in long term debt - 2,48,774₹ - 2,48,774₹
Cash provided (used) in Financing
Activities - 2,48,774₹ - 2,48,774₹
Net Change in Cash ₹ 2,14,802 ₹ 75,146
Beginning Value of Cash ₹ 9,84,675 ₹ 11,99,477
End Value of Cash ₹ 11,99,477 ₹ 12,74,623

(B) Break Even Point
1. Revenue
Formulas Used: Contribution Margin Rate = Contribution ÷ Sales Revenue
Break Even Sales Revenue (BESR) = Fixed Cost ÷ CMR
BESR 75,20,000 64,84,005 59,61,563
2. Covers
Formulas Used: Breakeven Cover = BESR ÷ APC
Break Even Day = Breakeven Cover ÷ Total Covers Sold Per Day
Year 1 Year 2 Year 3
BESR 75,20,000 64,84,005 59,61,563
APC 850 850 900
Breakeven Cover 8,847 7,628 6,624
Total Covers Sold/ Day 42 45 45
Breakeven Day 211 170 147
Year 1 Year 2 Year 3
Contribution 32,57,625 34,90,310 47,30,400
Sales Revenue 1,30,30,500 1,39,61,250 1,47,82,500
CMR 0.25 0.25 0.32
Fixed Cost 18,80,000 16,21,000 19,07,700

Section 2. The Financial Planning
(A) 1. Sources of Finance Available
For a start-up venture, the following sources of finance can be used either for equity or debts:
 Personal Investment
 Angel Investors: Family & Friends, Wealthy Individuals, Angel Groups or Network.
 Venture Capitalists
 Term Loans: Traditional Bank Loans or Lenders
 Crowd Funding
 Grants by the Government
 Patient Capital
(A) 2. Optimum Capital Structure Discussion
Out of the identified sources of finance, for setting us the base to construct an optimum
capital structure, equity was funded by the personal investment of the owner as well as from
the angel investors. Personal Investment is an essential source of finance while starting a
business as it is the amount in equity put in by the owner him/herself (Rs.34,00,000). Angel
Investors are the individuals who have extra cash to spare and are ready to invest in a
business to get a higher rate of return or share in the business in terms of providing equity.
They provide money either to be used as a debt amount or ownership share. Also a term loan
of 20,80,000 was taken from the bank for 10 years at the interest rate of 11%.
Pros and Cons: Angel Investors, in our case is the owner’s father who is providing the start-
up amount share of 20,00,000 in the equity. Advantage is that equity financing by angel
investor is less risky as compared to debt financing because the invested capital doesn’t have
to be returned if the business fails. But the disadvantage arrives with the loss of complete
control as a partnership owner and your angel investor has a say in the operations and
functioning of the new venture. Advantages of the term loan: Interest is tax-deductible, no-
say in the functioning and operation of the new venture and bank is not entitled to the profit
(Business Jargon). Disadvantages include: requires collateral, personal guarantee and strong
credit score. Interest to be returned, no matter what the financial status of the company is,
otherwise bankruptcy.

(A) 3. Financial Leverage
Formula Used: 𝐸𝐵𝐼𝑇 ÷ 𝐸𝐵𝑇
Financial Leverage
Yr 1 Yr 2 Yr 3
EBIT 13,77,625 18,69,310 28,22,700
EBT 10,24,438 15,16,123 24,69,513
Financial Leverage 1.34 1.23 1.14
Financial Leverage is a way to determine the financial risk associated with the company. As
seen in the above table, the financial leverage decreases with the coming year. This infers that
the debt taken for the restaurant, is paying paid off with the interest with time and hence
reducing the financial risk and chances of bankruptcy. Lower the financial leverage, low will
be the volatile earnings and financial burden will be.
(A) 4. Implications on Profitability
Interest rate throughout the loan period remains the same but the earnings before income and
tax increases due to better sales. The leverage effect is positive when the restaurant’s earnings
through the year are higher than the fixed charges (interest) to be paid to the bank.
The leverage is an important factor which is having impact on the profitability of the
restaurant and the wealth of the owners can be optimum when the restaurant is able to pay
more debt.

(B) Cost of Implication of the Financial Plan on Profitability
WACC Table (Original)
We Wd Ke Kd WACC or Overall Cost of
Capital
Year 1 0.75 0.25 0.11 8.58 0.02
WACC Table (Plan 1 & Plan 2, Plan 3) for Comparison
We Wd Ke Kd WACC or Overall Cost
of Capital
Plan 1 0.50 0.50 0.11 8.58 0.04 Wd=We
Plan 2 0.45 0.55 0.11 8.58 0.05 Wd>We
Plan 3 0.70 0.30 0.11 8.58 0.03 We>Wd
WACC is the best cost incurred to raise the money amount of fund you require. Plan 3 is the
best because it has lowest WACC out of the three plans which implies that less cost is
incurred to raise the fund.
WACC should be minimum.
EBIT- EBT Approach
Plan 1 Plan 2 Plan 3
EBIT ₹ 13,77,625 ₹ 13,77,625 ₹ 13,77,625
Less Interest ₹ 1,14,400 ₹ 1,25,840 ₹ 68,640
EBT ₹ 12,63,225 ₹ 12,51,785 ₹ 13,08,985
less Tax 22% Income
tax ₹ 2,77,909.50 ₹ 2,75,392.70 ₹ 2,87,976.70
PAT ₹ 9,85,316 ₹ 9,76,392 ₹ 10,21,008
Analysis in terms of EBIT- EBT approach demonstrates and implies that when Wd< We, the
venture generates the highest profit as shown in plan 3. Here, the WACC is also the lowest
for the plan 3 and hence it justifies when Wd decreases, the profit increases and Wd
increases, the profit decreases.

Section 3
(A) Significance and Features of Capital Project Planning
Planning a capital project for a fine dining restaurant requires addition of new facilities,
structure or any other extra requirement to accelerate the growth of the restaurant. Located in
the posh area of an upcoming city, the restaurant requires exclusive valet parking for the
guest. Also, to fulfil the necessity of avoiding cross-contamination and hygiene, the
restaurant’s kitchen is located on the separate floor. This construction and planning of
extensive design required high capital in terms of buying a land and building on it. Secondly,
the crockery and cutlery used for fine-dining full services requires high maintenance as well
as are non-usable within a year and therefore, new investment in cutlery and crockery is made
every year. Lastly, in terms of labour cost and promotion cost, the expenditure is high. This is
because skilled servers are required for silver service style and hiring them costs more money
than usual. Taking about promotion of the restaurant, since it is a new venture, the
expenditure for promotion in the first year is highest to penetrate the market and gradually it
decreases with the coming year.
Long term investment appraisal take into justify time value of money. This applies a simple
logic that money paid or received now is worth more than the anticipation of the same
amount in the future. Foe a new restaurant venture, in terms of investment opportunities,
money can be invested on assets now and can grow to a larger sum in the future (e.g.: Land).
In terms of cost of finance, for a loan, money generated or received can be used to pay off the
debt sooner and hence save on interest.

(B) 1. The Net Present Value
Formula Used: Total PV of Cash Inflow- Total Investment
The Net Present Value
Discounted Factor 11%
Initial Investment 53,50,000
Year PV Factor at 11% CFAT
PV of Cash
Inflow Cumulative
1 0.9009 ₹ 16,29,062 ₹ 14,67,622 ₹ 14,67,622
2 0.8116 ₹ 21,02,074 ₹ 17,06,043 ₹ 31,73,665
3 0.7311 ₹ 32,24,123 ₹ 23,57,156
Total PV of Cash Flow ₹ 55,30,821
2 Years + 21,76,335/23,57,156 = 2 Years + 0.92 =2 years 11 months
Almost 3 Years
NPV = ₹ 1,80,821.27
The restaurant would be earning back the initial investment in 2 years 11 months, that is,
almost 3 years.
(B)2. Internal Rate of Return
Internal Rate of Return
Discounted Factor 11% Discounted Factor 7%
Initial Investment 53,50,000 Initial Investment 53,50,000
Year PV Factor at 11% CFAT PV of Cash Inflow PV Factor at 7% CFAT PV of Cash Inflow Cumulative
1 0.9009 ₹ 16,29,062 ₹ 14,67,622 0.9346 ₹ 16,29,062 ₹ 15,22,521 ₹ 15,22,521
2 0.8116 ₹ 21,02,074 ₹ 17,06,043 0.8734 ₹ 21,02,074 ₹ 18,35,951 ₹ 33,58,472
3 0.7311 ₹ 32,24,123 ₹ 23,57,156 0.8163 ₹ 32,24,123 ₹ 26,31,852
Total ₹ 55,30,821 ₹ 59,90,324
2 Years +19,91,528/26,31,852= 2 Years+0.75 months = 2 Years 9 months
NPV = ₹ 1,80,821.27 NPV = ₹ 6,40,324
Comparing two discount factors, although the option of 7% interest seems more feasible, the

option of getting a loan at an interest rate of 7% was not available and hence as an owner,
taking a loan on 11% interest is also fruitful in terms of getting back the initial investment in
3 years.
IRR = [A + (C -OI)/(C -D) * (B - A)]
A= Discounted Factor of Low Trial 7%
B= Discounted Factor of High Trial 11%
C= PV of Cash inflow in the Low Trial 59,90,324
D= PV of Cash Inflow in the High Trial 55,30,821
OI= Original Investment 53,50,000
IRR = 0.12574 12.57%
The IRR calculated is 0.12574 or 12.57%
(B)3. Discounted Pay-Back Period
Discounted Pay-back Period
Formula = TPV of cash flow/ 3
TPV of cash flow ₹ 55,30,821
Year 3
Total Investment ₹ 53,50,000
₹ 18,43,607
2.90
The discounted pay-back period is calculated to be almost 2 years 10 months.
(B)4. Profitability Index
Profitability Index
Formula= TPV of cash flow/Initial Investment
Initial Investment ₹ 53,50,000
TPV ₹ 55,30,821
1.03
The profitability Index of the new venture was found to be 1.03.

Summary
While planning out the sales revenue that is generated every year, important conditions were
kept in mind such as since the restaurant is relevantly new, the occupancy rate was kept
around 70%. In the second year, the increase in profit was by 48% and in the third year it was
by 141% as compared to the first year due to increase in occupancy and APC in the
upcoming years. The total of fixed cost was relatively high as compared to the other years.
This is due to the fact that more expense on advertising and promotion of the restaurant was
spent to attract customers. The fixed costs were controlled in 2nd year but due to some
unavoidable factors such as increment of employees’ salary, utilization of more electricity
and utilities due to higher occupancy etcetera. The term loan of Rs 20,80,000 at an interest
rate of 11% for 10 years was taken from a government bank.
Using PMT function
Principal
Amount 2080000
Rate 11%
Loan Tenure 10
₹ -3,53,186.97
An amount of Rs 3,53,186 was deducted as an interest every year to get EBT. The interest
rate was set to 22% of the income. Other financing decisions such as investment in more
cutlery and crockery was done every year. Since it’s a fine-dining restaurant, the crockery
and cutlery used are expensive and require high maintenance and therefore, the investment
was significantly high as compared to other ventures. A decision to buy the land and building
was made due to availability of capital. Lastly, Breakeven Sales Revenue, Breakeven Cover
and Breakeven Day are decreasing with the coming years as the point at which the restaurant
starts earning profit is getting closer.
Financial planning for the new venture was decided after contemplating the pros and cons of
each financial sources and then deciding which source is most suitable for our venture and
after that an optimum capital structure was formed. Financial leverage and its implication on
profitability was calculated to understand the financial risk as an investor and how a fixed
interest rate is profitable for the restaurant.
Overall cost of capital (WACC) was calculated to understand the investment decisions to be
made and to evaluate other plans with similar and different risk. From an investor’s point of
view, WACC signifies the minimum ROR at which the restaurant produces value. A

simulation mix of comparison of the cost of debt if increased or decreased is implied in terms
of maximum profitability generated by the taken plans.
Profitability of investment in the fine-dining restaurant has been projected in the Net Present
Value calculation which implies that the investors are able to get back their initial investment
within 3 years. IRR signifies the estimated profitability of the potential investments. Initial
investments are evaluated for profitability by calculating the anticipated growth rate for
returns on investors’ venture. The discounted payback period was for almost 3 years and the
profitability index was found to be 1.03 which implies that the restaurant generates value and
going on with this project will give out a fruitful new venture that earns profit and is also
profitable in terms of investors’ payback amount.

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