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You are asked to value the Bear Bar

Finance

You are asked to value the Bear Bar. You have been doing research at the Bear Bar but you keep drinking too much and forgetting the details. You remember that the rent is something like $2,000 per week but could go up to $3,000 per week when the lease expires in two years. Utilities and insurance are approximately 500 per week. There is an extra worker 3 nights a week at $500 per night. You estimate that they sell 150 drinks per night (not including the free drinks to "Friends of the Bear Bar”. The average drink sells for $12 and they are open 5 nights a week. The cost of the drinks is approximately 30% of the revenue. The food they sell breaks even but brings in a lot more patrons.
Question 1 Can Andy and Grace pay themselves each $50,000 per year in the current conditions (weekly rent $2,000)? No, the business can't pay out $100,000 as the annual profit is $89,600 Yes, the business can pay out $100,000 as the annual profit is $89,600 Yes, the business can pay out $100,000 as the annual profit is $119,600 No, the business can't pay out $100,000 as the annual profit is $119,600
Question 2 Can Andy and Grace pay themselves each $50,000 per year once rent goes up 50% to $3,000? Yes, the business can pay out $100,000 as the annual profit is $67,600 Yes, the business can pay out $100,000 as the annual profit is $107,600 No, the business can't pay out $100,000 as the annual profit is $107,600 No, the business can't pay out $100,000 as the annual profit is $67,600
Question 3 In the current conditions (weekly rent $2,000), should Andy and Grace increase the average drink price to $14? With higher prices they will sell 20 less drinks per night. Yes, increasing prices will increase profit to $123,520 Yes, increasing prices will increase profit to $143,520 Yes, increasing prices will increase profit to $123,240 No, increasing prices will reduce profit to $103,520
Question 4 If the business runs for 5 years and weekly rent is $2,000 for the first 2 years and $3,000 thereafter, what is the PV of future cash flows assuming the cost of capital is 10%? $346,505 $519,600 $119,600 $306,505

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