Ginnys Restaurant
Case Study: Ginny's Restaurant
Team 6
1a. What is Vrginia's current weath?
Cash today
Cash in one year
Interest
Net Present Value
$2,000,000
$3,000,000
6%
(NPV) = $2M + $3M/ (1+0.06) = $4,830,188.68
Virginia's current wealth is made up of her $2 million in had and the present value of her future $3 million.
1b. How much can Virginia spend today?
Without a loan If Virginia does not want to borrow from the bank, she can spend a maximum of $2 million.
With a loan If Virginia makes use of a bank loan, taking into account the $2million in hand and the present value of her future 3 million, she will be able to spend a maximum of $4.83 million. PV of $3 million is $2.83Million PV. Assuming interest rates are constant for all entities, including the bank, within one year's time, 6% will have accrued and Virginia can repay the loan to the bank at $3 million.
1c. How much can Virginia spend one year from now?
Future Buying Power
Future Value Future Value of 2 million is 2.12 million - $2M (1+0.06) = $2.12 million
$2.12 million + $3 million = $5.12 million - Virginia has this amount to spend in one year's time if she spends nothing today. 2a. Assume Virginia had a lump sum of 4 million to invest. How much of the $4 million should Virginia invest in the restaurant?
Investment
Remaining Cash
Future Cash Flow from investment
Future Value Cash
Total FV
option 1
$1,000,000.00
$3,000,000.00
$1,800,000.00
$3,180,000.00
$4,980,000.00
option 2
$2,000,000.00
$2,000,000.00
$3,300,000.00
$2,120,001.00
$5,420,001.00
option 3
$3,000,000.00
$1,000,000.00
$4,400,000.00
$1,060,001.00
$5,460,001.00
option 4
$4,000,000.00
$0.00
$5,400,000.00
$0.00
$5,400,000.00
PV of FCF from investment
$1,698,113.00
$3,113,208.00
$4,150,944.00
$5,094,340.00
$698,113.00
$1,113,208.00
$1,150,944.00
$1,094,340.00
Net Value of investment
Virginia should choose Option 3, as this will offer the highest Future
Value and the highest Net Value of Investment
2a. What happens to Virginia's wealth
Team 6
1a. What is Vrginia's current weath?
Cash today
Cash in one year
Interest
Net Present Value
$2,000,000
$3,000,000
6%
(NPV) = $2M + $3M/ (1+0.06) = $4,830,188.68
Virginia's current wealth is made up of her $2 million in had and the present value of her future $3 million.
1b. How much can Virginia spend today?
Without a loan If Virginia does not want to borrow from the bank, she can spend a maximum of $2 million.
With a loan If Virginia makes use of a bank loan, taking into account the $2million in hand and the present value of her future 3 million, she will be able to spend a maximum of $4.83 million. PV of $3 million is $2.83Million PV. Assuming interest rates are constant for all entities, including the bank, within one year's time, 6% will have accrued and Virginia can repay the loan to the bank at $3 million.
1c. How much can Virginia spend one year from now?
Future Buying Power
Future Value Future Value of 2 million is 2.12 million - $2M (1+0.06) = $2.12 million
$2.12 million + $3 million = $5.12 million - Virginia has this amount to spend in one year's time if she spends nothing today. 2a. Assume Virginia had a lump sum of 4 million to invest. How much of the $4 million should Virginia invest in the restaurant?
Investment
Remaining Cash
Future Cash Flow from investment
Future Value Cash
Total FV
option 1
$1,000,000.00
$3,000,000.00
$1,800,000.00
$3,180,000.00
$4,980,000.00
option 2
$2,000,000.00
$2,000,000.00
$3,300,000.00
$2,120,001.00
$5,420,001.00
option 3
$3,000,000.00
$1,000,000.00
$4,400,000.00
$1,060,001.00
$5,460,001.00
option 4
$4,000,000.00
$0.00
$5,400,000.00
$0.00
$5,400,000.00
PV of FCF from investment
$1,698,113.00
$3,113,208.00
$4,150,944.00
$5,094,340.00
$698,113.00
$1,113,208.00
$1,150,944.00
$1,094,340.00
Net Value of investment
Virginia should choose Option 3, as this will offer the highest Future
Value and the highest Net Value of Investment
2a. What happens to Virginia's wealth