Aswath Damodaran 263
Adding a Café: Bookscape
! The initial cost of remodeling a portion of the store to make it a cafe, and of buying equipment is expected to be
$ 150 , 000. This investment is expected to have a life of 5 years, during which period it will be depreciated using straight
line depreciation. None of the cost is expected to be recoverable at the end of the five years.
! The revenues in the first year are expected to be $ 60 , 000 , growing at 10 % a year for the next four years.
! There will be one employee, and the total cost for this employee in year 1 is expected to be $ 30 , 000 growing at 5 % a
year for the next 4 years.
! The cost of the material (food, drinks ..) needed to run the cafe is expected to be 40 % of revenues in each of the 5 years.
! An inventory amounting to 5 % of the revenues has to be maintained; investments in the inventory are made at the
beginning of each year.
! The tax rate for Bookscape as a business is 40 %.
This is a café being added on to an existing bookstore. The revenues shown
here are the revenues at the café.
