Cedar's Restaurant Case Summary
Assuming you desire to earn a 12% rate of return on your investment, Cedar’s restaurant is not probably not your top choice. The net present value of the investment is positive, but not the higher percentage you are in need of. Uncertainty is a huge factor in investing, especially when considering investing in a restaurant.
Restaurant investing is certainly risky considering the average failure rate for restaurants is between 90-95%. This investment seems rather sound and would be a positive alternative to not invest at all as the $250K today would be worth approximately $226K in seven years if not invested.
Several additional financial aspects of this business would be additionally helpful in determining the riskiness of this investment such as the balance sheet, income statement and statement of cash flows. The promise of future cash flows and buy back on this investment may not be enough to go on. Management is also an area concern and certain questions should be asked; where the business has been, where it’s headed and who’s at the helm and making the decisions. Another area of concern might be that the primary owner is a chef and may not have much knowledge about business. Just because the restaurant chain is expanding does not, in any way, guarantee that the organization has the infrastructure or capacity to handle the growth; bigger is not always better. …show more content…
During hard times, an upscale restaurant may not fair so well. It could be thought of as more of a fluff factor during hard times and people might tighten their wallets and curb dining out, especially high end dining.
A less risky investment with a higher rate of return might be a better alternative to investing in
Restaurant investing is certainly risky considering the average failure rate for restaurants is between 90-95%. This investment seems rather sound and would be a positive alternative to not invest at all as the $250K today would be worth approximately $226K in seven years if not invested.
Several additional financial aspects of this business would be additionally helpful in determining the riskiness of this investment such as the balance sheet, income statement and statement of cash flows. The promise of future cash flows and buy back on this investment may not be enough to go on. Management is also an area concern and certain questions should be asked; where the business has been, where it’s headed and who’s at the helm and making the decisions. Another area of concern might be that the primary owner is a chef and may not have much knowledge about business. Just because the restaurant chain is expanding does not, in any way, guarantee that the organization has the infrastructure or capacity to handle the growth; bigger is not always better. …show more content…
During hard times, an upscale restaurant may not fair so well. It could be thought of as more of a fluff factor during hard times and people might tighten their wallets and curb dining out, especially high end dining.
A less risky investment with a higher rate of return might be a better alternative to investing in