2014

INSTITUTE OF BUSINESS MANAGEMENT

STRATEGIC FINANCIAL MANAGEMENT REPORT ON

FAST FOOD RESTAURANT

SUBMITTED TO

DATE OF SUBMISSION

GROUP MEMBERS
Asma Sikander
Shoaib Rizvi
Waleed Ahmed
Zohra Hanif

Sir Faisal Dhedhi

9th August 2014

ACKNOWLEDGEMENT
This report is basically on launching a new business and checking its feasibility that whether
it would be profitable for us in both short run and long run. It has been prepared as a part of
the course of STRATEGIC FINANCIAL MANAGEMENT.
We would like to thank our Strategic Financial management faculty Mr. Faisal Dhedhi for
his guidance and help and by providing us the opportunity to work on this project and to let
us practically understand that how a new business can be launched by checking its feasibility
and detailed financial analysis.
This report has been very instrumental in applying the theoretical and numerical concepts
and learning the practical aspects of Strategic Financial Management.
Mr. Faisal Dhedhi demonstrated the real existence of the course, providing us with practical
examples of different companies and clarifying our concepts of how the actually business
financial analysis is done.

LETTER OF TRANSMITTAL

August 09, 2014

Mr. Faisal Dhedhi
Instructor of Strategic Financial Management
Institute Of Business Management
Karachi.

Respected Sir
Subject: Report On Fast food Restaurant Pre- Feasibility Financial Analysis

The group members prepared a report on launching a new business of fast food restaurant in
which a detailed financial analysis is made about whether the business would lead to a
success or failure both in the short run as well as in the long run.

Thank you for giving us the opportunity to prepare a report in which we had an idea of how
actually a new business is setup by analyzing it through different financial requirements.

Asma Sikander
Shoaib Rizwi
Waleed Ahmed
Zohra Hanif

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................ 5
INTRODUCTION .......................................................................................................................... 2
BRIEF ABOUT THE PROJECT ................................................................................................ 2
WINDOW OF OPPORTUNITY ................................................................................................ 2
INDUSTRY ANALSIS ............................................................................................................... 3
FUTURE OF THE INDUSTRY ..................................................................................................... 4
OUR BUSINESS DETAILED ANALYSIS ................................................................................... 4
SWOT ANALYSIS ........................................................................................................................ 6
COSTING ....................................................................................................................................... 7
PROJECT INVESTMENT ......................................................................................................... 7
PRODUCT MIX ......................................................................................................................... 8
MACHINERY AND EQUIPMENT ......................................................................................... 10
FURNITURE ............................................................................................................................ 10
LAND REQUIREMENT .......................................................................................................... 11
STAFFING ................................................................................................................................ 11
MISCELLANEOUS COST ...................................................................................................... 12
VARIABLE COST ....................................................................Error! Bookmark not defined.
FINANCIAL ANALYSIS ............................................................................................................ 13
ASSUMPTIONS ....................................................................................................................... 13
INCOME STATEMENT .......................................................................................................... 14
BALANCE SHEET................................................................................................................... 15
CASH FLOW STATEMENT ................................................................................................... 16
COMMON SIZING ANALYSIS.............................................................................................. 17
RATIO ANALYSIS .................................................................................................................. 18
DUPONT ANALYSIS .............................................................................................................. 18
CAPITAL BUDGETING .......................................................................................................... 19
OVERALL DECISION AND COMMENTS ............................................................................... 19
CONCLUSION ............................................................................................................................. 20

1. EXECUTIVE SUMMARY

In this report our main aim to analyze our new business of fast food in which we will be
offering different variety of products. through our detailed financial analysis we have
made income statement, balance sheet, cash flow statements and capital budgeting
through which we would be analyzing that out business would be successful or not and is
it feasible enough for us to launch a business or not. All values are assumption based
realistically. Our target market would be youth as fast food is growing tremendously
these days and people want convenience due to hectic schedules of their lives. Other than
this a brief intro about the industry has been discussed in this report plus a detailed
financial analysis has been made and then in the end our conclusions and decision of
what we have done has been discussed.

2. INTRODUCTION

In this report, we have basically launched a new business of fast food having variety of
food items offered to the consumers. This report is a pre-feasibility report which would
help us to give an idea about our business launch in terms of planning, setting up and
operating. It is a kind of decision making report that whether this business would be
feasible to open or not and will it be profitable in the long run or not.

3. BRIEF ABOUT THE PROJECT

These days fast food is increasing among youth especially and is almost served at all the
fast food restaurants. This industry is running in profitable terms and would increase to
grow in upcoming years. Food cooked in such restaurants is cooked in bulk beforehand
and kept warm and reheated to order. In Pakistan small individually owned fast food
restaurants have become common and are continuing to grow as well.

4. WINDOW OF OPPORTUNITY
As Fast food is one of the growing markets in Pakistan which changes according to the
lifestyle patterns of the target market as well as the population. These days consumers
want to have delicious and tempting food whenever they want to go to some restaurant.
As life is becoming hectic for almost each and every individual in Pakistan, people look
for convenience in terms of getting quick meals rather than spending whole day in
kitchen and preparing for it. Rate of growth in consumer expenditures on fast food is
growing throughout the whole country and is still in the process of growth because of
demand of convenience is rising. Therefore fast food restaurants act as a time saving
mechanism.
Even through observations, it is found that whenever any person is working he or she
wants something to eat along with it like if a person goes for shopping he would stop at a
place to have some fast food and other activities too. Hence growth of fast food has taken
place and still in process to grow.

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

5. INDUSTRY ANALSIS
One of the reasons of fast food restaurants in Pakistan is growing because of its
innovation and there are even international franchises which have been opened up like
McDonalds, Burger King, Pizza Hut, Fat burger and other restaurants too. In local there
are Red Apple, Eaton, Hot and Spicy and others. The target market of international
franchises is mostly high income consumers whereas local restaurants target middle and
high level income consumers. Multinational franchises have modified their menus
according to the local tastes.
a)

GROWTH OF FAST FOOD OUTLETS IN PAKISTAN

The number of outlets during the last one decade has increased tremendously
because of the demand for convenience and demand of fast food thus making it
accessible and affordable for consumers. Almost local restaurants do not have
much sitting capacity as compared to international franchises because they are
small in size and most of them are located in malls, office buildings and so on.

b) CONSUMER CENTRIC
Fast food has become popular among the youth because of easy access,
affordability, convenience and now businesses have increased their delivery
services too at low cost. People these days are too much hygiene conscious too so
they want to go to such a restaurant which focuses on cleanliness plus they want
restaurants to provide them with fast and quick services. Therefore now a days
businesses and restaurants are focusing on these issues through innovation and
how to control these kinds of problems.
c)

POPOLATION GROTH
Pakistan is ranked 6th in terms of total population as its total population at the end
of 2013 was 182,589,000 people, which represents an increase of 3,428,889
people compared to 2012. The male population is greater, with 93,572,561 men,
representing 51.24% of the total, compared to 88,570,033 or 48.50% women.
The growth rate in food consumption has also increased between the ages of 2029 years mostly which leads to greater income contribution to the overall income
and thus tends to increase in future as well.

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

6. FUTURE OF THE INDUSTRY

Day by day the economic situation of the country is becoming service oriented and is
focusing on how to meet the needs of the consumers by providing them satisfaction and
convenience facilities and those businesses who are able to do it are having strong sales
growth. With time the population growth is also increasing as mentioned above therefore
income levels are also raising along with difficult and rough and tough work schedules
due to which demand for convenience is also increasing. Fast food businesses therefore
are now moving towards accessibility factor.
Big and large restaurants who are working on full capacity are likely to capture a large
part of the market offering other services as well like take away and delivery services. In
this way the demand will rise and the shape of fast food industry will likely to grow in
future.
7. OUR BUSINESS DETAILED ANALYSIS
a)

LOCATION
We have planned to launch a new fast food business in Defence at Khayaban-eBadar because on that road there is only one restaurant and that is Gloria jeans
whereas in other parts of Defence like Khadda market there are many fast food
restaurants in which the competition would be high.

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

b)

TARGET MARKET
We would be targeting youth ages from 18-35 as this age bracket are mostly
likely to explore new places and are too much into socializing with friends and
others and are into building relationships.

c)

SERVICE STYLE AND FOOD CONCEPT

As it is a fast food business we would be offering burgers, sandwiches, special
products like toasted cheese tomato sandwich, drinks and broast chicken. As
demand for fast food is increasing we tend to offer these products at the initial
phase and then with time we would be increasing our product mix with new and
different items.

d)

SOURCE OF FINANCING
Our source of financing would be 50 percent debt and 50 percent equity. We
would present our business plan to bank for loan to set up a business whereas 50
percent equity would be divided equally among each partner. As we are four
members we would equally invest the amount and then at the end of the year we
would divide the profit and loss equally.

e)

LAUNCH STRATEGY
We would advertise our business through different billboards, TVCs, brochures in
which our target market could become aware of our newly launched business.

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

8. SWOT ANALYSIS

STRENGTHS
It would be cost advantage as its prices would be
comparatively a bit lower or similar to competitors
If a consumer likes our food than there are chances
that he would come again and in this way loyalty
would be built.

With time financial position would become a

strength

Our pricing would be economical that consumers

are willing to pay

We will train our staff in such a way that

consumers would be happy with the behavior and
service provided to them.
We would be consistent in our quality as there
wont be any compromise in the quality factor

WEAKNESSES
If any staff misbehaves with the staff
there are chances that consumers would
be disappointed and in this way we can
lose our customers
Because of debt there are chances of
risk and if we are unable to pay off the
debt in case of loss it would be a
disaster for the business

As it is a fast food restaurant there

wont be too much R&D involved
which would result into low innovation
As it is newly launched business there
wont be any online webpage created
for online deliveries

Weak management team

OPPORTUNITY

Acquisitions
Emerging markets and expansion abroad
Innovation at a low scale
Online
Product and services expansion
Diversification into new categories other than fast
food

THREATS
Competition
Cheaper technology
Economic slowdown
External changes (government,
politics, taxes, etc)
Exchange rate fluctuations
Lower cost competitors or imports
Price wars
Product substitution

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

9. PROJECT PARAMETES

Business Details
Small Business
No construction, place taken on rent
Located in Defense
Seating arrangement for 30-35 people maximum at a time
Initially Dine in and Take away only
All sales on cash basis i.e. No account receivables
Debt to Equity Ratio 50:50
Restaurant is based on a size of 800 SQ FT
The outlet will operate 7 days a week
There will be 2 peak hours in a day

10. COSTING

10.1.

PROJECT INVESTMENT
Below is the total cost of the project
Table 9.1. Project Investment
Description
Renovation Cost
Furniture

Amount
1,000,000
550,000

Equipment and Machinery

2,460,000

Rent Deposit

1,440,000

Cash at Bank

300,000

Miscellaneous

240,000

TOTAL

5,990,000

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

10.2.

PRODUCT MIX
Table 9.2. Product Mix

Broast

Cost

Price

Unit Sales

Total Cost

Total Sales

Chicken Broast (Qtr.)

70
100

180
300

20
8

1,400
800

3,600
2,400

100
110
80
90
110

230
250
200
220
270

20
10
8
6
30

2,000
1,100
640
540
3,300

4,600
2,500
1,600
1,320
8,100

30
32
45
45

70
75
90
80

30
20
10
5

900
640
450
225

2,100
1,500
900
400

50
60
70
50
70

80
120
90
85
150

20
15
10
5
5

1,000
900
700
250
350

1,600
1,800
900
425
750

40
60

100
130

5
5

200
300

500
650

30
30
30
30
30
20
30

60
60
60
60
60
50
80

30
30
15
10
10
10
10

900
900
450
300
300
200
300
19,045

1,800
1,800
900
600
600
500
800
42,645

Chicken Broast (Half)

Burgers
Chicken Burger
Chicken Cheese Burger
Beef Burger
Beef Cheese Burger
Zinger Burger
Fries
Normal fries
Masala fries
Mayo fries
Masala vinegar fries
Sandwiches
Chicken Sandwich
Club Sandwich
Chicken Mayo sandwich
Chicken cheese sandwich
Toasted cheese tomato sandwich
Hot Dogs
Normal hot dog
Hot dog with cheese
Soft drinks
Cola
Sprite
Miranda
Diet coke
Diet 7up
Mineral water (small)
Mineral water (large)
TOTAL

It is preferable to keep a variety of fast food items in order to capture our target market but at the
initial phase we have planned to keep low variety of fast food items in order to cover our initial
setup costs and achieve profits. Once the fast food business starts to establish a number of items
would be included in the product mix like Chinese, barbeque, pizza and other items.
INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

10.3. SALES
Following are the expected sales based on certain assumptions and market
research
Table 10.3. Sales
DESCRIPTION

DAILY

MONTHLY

ANNUAL

TOTAL SALES

42,645

1,279,350

15,352,200

TOTAL RM

19,045

571,350

6,856,200

GROSS PROFIT

23,600

708,000

8,496,000

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

11.

MACHINERY AND EQUIPMENT

Description
Freezer
Baking Oven
Burger Grill
Broast Machine
Microwave
Deep Well Fryer
Working Table & Shelves

Table 11. Equipment and Machinery

Units
Cost
2
1
1
2
2
1
2

45,000
50,000
300,000
950,000
10,000
60,000
20,000

Total Cost
90,000
50,000
300,000
1,900,000
20,000
60,000
40,000

Total

2,460,000

Machinery and equipment is an essential part of any project in order to satisfy their
needs and wants. As through machinery and equipment, quality of food depends.
11.1 MACHINERY MAINTENANCE
As it is important that any equipment in a company needs to be maintained in
order to remain clean and produce the same quality product therefore
maintenance would be done every month of the miscellaneous cost meaning that
yearly it would cost Rs.120000.
12. FURNITURE
Description

Table 12. Furniture

Units
Cost
8

10000

Total Cost
80,000

40

5,000

200,000

Air Conditioner (2ton)

120,000

240,000

Waiting Sofa

10,000

20,000

20

500

10,000

Dining Table (2*2)

Chairs (14")

Cutlery Set
Total

550,000

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

At one time the restaurant would be able to serve maximum of 30-35 people per day
which would be good enough to avoid any kind of conflict in the initial phase.

13.

LAND REQUIREMENT
The land requirement is around 1200 Square Fit as there is no such rush on that road
where we have decided to start up a business.

14.

RENTAL BASIS
The proposed premises will be acquired on a rental basis with 6 month deposit and 6
months advance rent after which rent will be payable on a monthly basis. The
monthly rent is PKR 120,000 per month for the proposed fast food outlet.

Description
Rent

15.

Table 14. Rent

Total
Frequency
120,000
Monthly

STAFFING

There are some basic people required to run any fast food restaurant and according
to internal policies of the company following is the monthly requirement of workers
along with their monthly salary.

Description
Kitchen Supervisor
Cook
Waitors
Cashier
Cleaner
Guard
Total

Table 15. Workers

Unit
Cost
1
4
4
1
1
1

20,000
40,000
15,000
15,000
12,000
12,000

Total Cost
20,000
160,000
60,000
15,000
12,000
12,000
279,000

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

It is the duty of human resource to control the business therefore as per our project
size the above table shows the distribution of the staff we would wish to hire to
control the management affairs. Cashier would be responsible for handling the
payment.
16.

VARIABLE COST
Table 16. Variable Cost
Description
Electricity
Water
Gas
Telephone
Raw Material Cost (chicken, bun, potato etc.)
Maintenance Cost
Total

17.

Total Cost
100,000
10,000
70,000
15,000
571,350
10,000
776,350

MISCELLANEOUS COST

After all other cost there is some kind of miscellaneous things required in every
business. In fast food business following are the things required for day to day
activities.

Description
Potato Cutter
Working crockeryset
Aprons
Gloves
Table Cloth & Napkins
Hand Sanitizer
Kitchen Tissue Roll
Total

Table 16. Miscellaneous Cost

Unit
Cost
2
2
4
10
16
4
6

24,000
60,000
1,200
960
2,400
1,200
2,400

Total Cost
48,000
120,000
4,800
9,600
38,400
4,800
14,400
240,000

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

18.

FINANCIAL ANALYSIS

18.1.

ASSUMPTIONS
For our project the following assumptions have been made:

Table 18.1. Assumptions

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18

All sales on cash basis i.e. No account receivables

Debt to Equity Ratio 50:50
Tax Rate are varying (those applicable on a sole proprieter)
Increase in Sales 15 % per year
Increase in Cost of Raw Materials 10 % per year
Increase in Staff Salaries 10 % per year
Increase in Utility Expenses 10 % per year
Increase in Rent 10 % per year
Depreciation of Building, Furniture and Machinery at 10 % Straight Line Method)
Food Inventory 3 days
Cash initially placed in bank will be 300,000 (liquidity requirements)
Interest on Debt is assumed to be 18%
Rent will be paid on monthly basis
After year 5, Net Profit will increase 10 % annually from previous year
Business will continue for a forseeable future
Renovation cost will be 1,000,000 for the first year
Prepaid Rent Deposit of Rs 1,440,000 will be paid in advance
Opportunity cost of capital will be 18.80% (WACC)

The 15% annual increase in revenue is expected to result from a part increase in
population increase and demand for convenience.
As rent would be paid Rs.120000 per month it would be assumed that Rs.1440000 would
be given in advance before the business launches. This amount would include 6 months
deposit and 6 months advance rent. It would increase at a rate of 10% every year because
of the economic indicators and inflationary pressures.

All sales will be made strictly on cash basis. It is not wise to operate a fast food restaurant
on credit basis.

Source of long term debt finance would be for 5 years at a rate of 18% interest paid
annually. Installments are paid at the end of every year.
INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

18.2.

INCOME STATEMENT
Year 1

Year 2

Year 3

Year 4

Year 5

Sales
less: COGS
Opening Balance
Add Purchases
Closing Balance
Sub Total
Gross Profit
less: Operating Expenses
Rent
Wages
Electricity
Water
Gas
Telephone
Depreciation
Maintenance Cost
Subtotal
Operating Income

15,352,200

17,655,030

20,303,285

23,348,777

26,851,094

6,913,335
57,135
6,856,200
8,496,000

57,135
7,604,669
62,849
7,598,955
10,056,075

62,849
8,365,135
69,133
8,358,851
11,944,434

69,133
9,201,649
76,047
9,194,736
14,154,042

76,047
10,121,814
83,651
10,114,209
16,736,885

1,440,000
3,348,000
1,200,000
120,000
840,000
180,000
401,000
120,000
7,649,000
847,000

1,584,000
3,682,800
1,320,000
132,000
924,000
198,000
401,000
120,000
8,361,800
1,694,275

1,742,400
4,051,080
1,452,000
145,200
1,016,400
217,800
401,000
120,000
9,145,880
2,798,554

1,916,640
4,456,188
1,597,200
159,720
1,118,040
239,580
401,000
120,000
10,008,368
4,145,674

2,108,304
4,901,807
1,756,920
175,692
1,229,844
263,538
401,000
120,000
10,957,105
5,779,780

Financial Charges (18%)

Earnings before Taxes
Tax (varying slabs)
Earnings after Taxes

539,100
307,900
307,900

463,746
1,230,529
65,553
1,164,976

374,827.8
2,423,726
249,152
2,174,574

269,904.5
3,875,769
568,942
3,306,827

146,095.1
5,633,685
1,049,263
4,584,421

25,658.33

97,081.36

181,214.51

275,568.90

382,035.12

Earnings after Taxes

Monthly

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

18.3.

BALANCE SHEET

Projected Balance Sheet

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

300,000
0

533,130
57,135

1,599,404
62,849

3,585,787
69,133

6,598,870
76,047

10,765,047
83,651

1,440,000

1,440,000

1,440,000

1,440,000

1,440,000

1,440,000

1,740,000

2,030,265

3,102,253

5,094,920

8,114,917

12,288,699

2,460,000

2,214,000

1,968,000.0

1,722,000.0

1,476,000.0

1,230,000.0

550,000

495,000

440,000

385,000

330,000

275,000

1,000,000

900,000

800,000

700,000

600,000

500,000

4,010,000

3,609,000

3,208,000

2,807,000

2,406,000

2,005,000

240,000

240,000

240,000

240,000

240,000

240,000

Total Asset's

5,990,000

5,879,265

6,550,253

8,141,920

10,760,917

14,533,699

Equity
Retained Earnings
Total Equity
Liability

2,995,000
2,995,000

2,995,000
307,900
3,302,900

3,302,900
1,164,976
4,467,876

4,467,876
2,174,574
6,642,450

6,642,450
3,306,827
9,949,277

9,949,277
4,584,421
14,533,699

Long Term Liability

2,995,000

2,576,365

2,082,376

1,499,470

811,640

(0)

Total Equity and Liabilities

5,990,000

5,879,265

6,550,253

8,141,920

10,760,917

14,533,699

Assets
Current Assets
Cash at Bank
Inventory
Prepaid
Rent
Deposit
Total Current Assets
Fixed Assets
Equipment
and
Machinery
Furniture
Renovation
Cost
Total Fixed Assets
Miscellaneo
us Expenses

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

18.4.

CASH FLOW STATEMENT

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Net Profit

307,900

1,164,976

2,174,574

3,306,826.82

4,584,421.43

Add: Depreciation Expense

401,000

401,000

401,000

401,000

401,000

5,042,863.
57
401,000

Change In Inventory

(57,135)

(5,714)

(6,285)

(6,913)

(7,605)

(92,016)

Net Cashflow from Operations

651,765

1,560,263

2,569,289

3,700,913

4,977,817

5,351,847

(418,635)

(493,989)

(582,907)

(687,830)

(811,640)

(418,635)

(493,989)

(582,907)

(687,830)

(811,640)

(5,690,000)

300,000

233,130

1,066,274

1,986,382

3,013,083

4,166,177

5,351,847

300,000

533,130

1,599,404

3,585,787

6,598,870

10,765,04
7

Cashflow from Operating Activities

Cashflow from Financing Activities

Receipt of Long-Term Debt

2,995,000

Repayment of Long-Term Debt

Owner's Equity

2,995,000

Net Cashflow from Financing Activities

5,990,000

Cashflow from Investing Activities

Construction Cost

(1,000,000)

Furniture

(550,000)

Equipment and Machinery

(2,460,000)

Rent Deposit

(1,440,000)

Miscelleneous

(240,000)

Net Cashflow from Investing Activities

Net Cash Flow

Cash at the Beginning of the Year

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

18.5.

COMMON SIZING ANALYSIS

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

18.6.

RATIO ANALYSIS

18.7.

DUPONT ANALYSIS

DuPont Analysis
RoE

NPM
Leverage ratio

DuPont

Year 1
0.09

Year 2
0.26

Year 3
0.33

Year 4
0.33

Year 5
0.32

2.01

6.60

0.09

0.17

0.17

1.78

1.47

1.23

1.08

1.00

0.33

2.52

0.04

0.06

0.05

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

18.8.

19.

CAPITAL BUDGETING

OVERALL DECISION AND COMMENTS

NPV is positive so we should pursue this project. Our profitability ratios are increasing
year by year which shows a positive sign of starting this project. Return on equity is more
or less similar each year. Debt is decreasing which shows that we are paying the debt on
time.

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

20. CONCLUSION
NPV = RKR 18,215,590
IRR = 19%
WACC 18.80%
Payback period = 3.7084 years
PI = 4.04

Therefore we can start up this project because of the above assumptions.

INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)