Question 2: Cash Flows

You are considering setting up a new restaurant. The restaurant would be open for four years (from t=0 to t=4). You have come up with the following information:

 The locale for the restaurant will cost $500,000 today (t=0) and will be fully depreciated in a straight line over 5 years according to IRS rules. You can sell the locale for $200,000 after 4 years.

 The main cost will be the chef’s salary. Her salary will be $400,000 annually (starting at t=1).

 The revenues of the restaurant are expected to be $1,500,000 per year (starting at t=1) and other costs (not including depreciation or the chef’s salary) are expected to be $200,000 annually (starting at t=1).

 All cash flows occur at the end of the year.

 The opportunity cost of your time is zero.

The tax rate is 35%. Prepare a cash flow table for the restaurant.