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Roma Corral

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In the RomaCorral Case two constraints were to achieve an average return on investment of 10% and increase after tax profit by 5%.

When I did my NPV and discounted using 10% I got positive NPV so it would satisfy this constraint of 10%.

How do I calculate the after tax 5% constraint? Can you please help to work with an example?
You can do pro forma statements showing after tax profit before and after alternative implementation - show the % increase between the two to calculate the constraint.

Hello, this might be a silly q but when I did my quants for RomaCorral I got a positive NPV for coffee shops and negative NPV's for expanding (probably did the calcs wrong). To me the Strategic Issue was to make sure we met the mandate of the 5% profit increase over 2 years and the dividends and the expanding of restaurants contributed to this big time...the coffee shops contributed to this too but very minimal. Therefore I said implement both even though the restaurant expansion had a negative NPV.

Therefore the question is: do we always reject a negative NPV or if it solves the Strategic Issues do we accept the alt? I heard somewhere that this is accepted. If not accepted, then do we lose big time marks?
If you get a negative NPV for an alternative, you should not be recommending it becaue at the end of the day, every company, even a non for profit, needs to be profitable to survive. If however you feel that this alternative is in fact very strong and touches on a lot of qualitative point, you may want to revisit your NPV calculation and the various assumptions that you have used - take a look at them and see if they are in fact reasonable assumptions (maybe you were too conservative and can adjust some of the assumptions a bit to allow you to get to an NPV of at least 0).
I also have Negative NPV for expansion of Roma and Corral. It will take $6100, 000.00

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