Question

When will the business below finally get out of debt? Would you suggest starting the business given your calculations? Why or why not?

All-Star Daycare Burrito Barn Cell Resell Dinner Food Spot

Start-Up Costs:

1. All-Star Daycare: $125,000
2. Burrito Barn: $45,000
3. Cell Resell: $16,000
4. Dinner Food Spot: $55,000

Monthly Expenses:

5. All-Star Daycare: $52,000
6. Burrito Barn: $25,000
7. Cell Resell: $6,500
8. Dinner Food Spot: $32,000

Projected Monthly Revenue:

9. All-Star Daycare: $58,500
10. Burrito Barn: $27,500
11. Cell Resell: $6,250
12. Dinner Food Spot: $36,000

Lab Expense:

13. LaToya: 1
14. Sophia: 1
15. LaToys Pago: 5

Break-Even Point:

A. Month 5

B. Month 11

C. Month 15

D. Month 20

Answer 1

Determine when the business will finally get out of debt, we need to calculate the break-even point. The break-even point is 27.9 months, meaning the business will get out of debt in Month 28. Whether to start the business or not depends on various factors.

Step-by-step explanation:

To determine when the business will finally get out of debt, we need to calculate the break-even point. The break-even point is when the total revenue equals the total expenses. We can calculate the break-even point by subtracting the total fixed costs from the total revenue and dividing the result by the contribution margin.

The total fixed costs are the sum of the start-up costs, which is $241,000, plus the monthly expenses, which is $115,500. So the total fixed costs are $356,500.

The contribution margin is the difference between the projected monthly revenue and the monthly expenses. So for All-Star Daycare, the contribution margin is $58,500 - $52,000 = $6,500. For Burrito Barn, the contribution margin is $27,500 - $25,000 = $2,500. For Cell Resell, the contribution margin is $6,250 - $6,500 = -$250. For Dinner Food Spot, the contribution margin is $36,000 - $32,000 = $4,000.

Now we can calculate the break-even point by dividing the total fixed costs by the contribution margin: $356,500 / ($6,500 + $2,500 - $250 + $4,000) = $356,500 / $12,750 = 27.9 months. This means that the business will finally get out of debt by Month 28. Now, whether to start the business or not depends on various factors such as market conditions, competition, and potential profitability. It is recommended to conduct further analysis and consider these factors before making a decision.