E. (1) Draw Npv Profiles For Franchises L And S. At What Discount Rate Do The Profiles Cross?

four/11/2010

Affiliate 10. Mini Instance

State of affairs

Expected Franchise S

Net Greenbacks Flows

Year (t) Franchise S Franchise 50 0 1 two iii

0 ($100) ($100) (100) lxx 50 20

1 seventy 10

2 50 60 Franchise L

3 20 80

0 1 2 3

(100) 10 60 80

Depreciation, relieve values, internet working capital requirements, and tax effects are all included in these cash flows.

c. (1.) Define the term net present value (NPV). What is each franchise's NPV?

Net Nowadays Value (NPV)

WACC = 10%

Franchise South

Time period: 0 i ii 3

Cash catamenia: (100) 70 50 twenty

Disc. greenbacks menstruum: (100) 64 41 15

NPV(South) = $19.98 = Sum disc. CF's. or $xix.98 = Uses NPV part.

You have just graduated from the MBA program of a large university, and i of your favorite coursesouthward was "Today'southward

Entrepreneurs." In fact, you enjoyed it so much y'all have decided y'all want to "be your ain boss." While you were in the

principal'southward program, your grandfather died and left you $i meg to do with as you lot please. You are not an inventor, and you lot exercise not

have a trade skill that you can market; all the same, you have decided that you would like to purchase at least one established

franchise in the fast-foods expanse, maybe two (if profitable). The problem is that you take never been one to stay with any project

for too long, and so you figure that your time frame is three years. After three years you volition continue to someaffair else.

Y'all have narrowed your selection down to two picks: (1) Franchise L, Lisa'southward Soups, Salads, & Stuff, and (2) Franchise S,

Sam'southward Fabled Fried Chicken. The net greenbacks flows shown below include the price you would receive for selling the franchise in

Twelvemonth 3 and the forecast of how each franchise will do over the 3-year period. Franchise Fifty'due south cash flows will start off slowly just will

increment rather apace as people become more health witting, while Franchise Due south's cash flows will start off high just will trail off

as other chicken competitordue south enter the marketplace and equally people get more wellness conscious and avoid fried foods. Franchise

50 serves breakfast and lunch, while Franchise Southward serves but dinner, so it is possible for you to invest in both franchises. Y'all see

these franchises every bit perfect complements to ane another: You could concenter both the lunch and dinner crowds and the health

witting and not and so health witting crowds without the franchises directly competing against one another.

Hither are the net cash flows (in thousands of dollars):

You also accept fabricated subjective take chances assessments of each franchise and concluded that both franchises take risk graphic symbolistics

that require a return of ten%. You chiliadust now decide whether i or both of the franchises should be accepted.

a. What is capital letter budgeting? Reply: Encounter Chapter ten Mini Instance Bear witness

b. What is the difference between independent and mutually exclusive projects? Reply: Come across Chapter 10 Mini Case Show

To summate the NPV, we notice the present value of the individual cash flows and find the sum of those discounted cash flows. This

value represents the value the projection add together to shareholder wealth.

A B C D East F G H I J K

1

2

iii

4

5

6

7

8

9

10

i1

12

thirteen

14

fifteen

xvi

17

xviii

19

twenty

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

E. (1) Draw Npv Profiles For Franchises L And S. At What Discount Rate Do The Profiles Cross?,

Source: https://www.studocu.com/en-us/document/university-of-memphis/global-financial-mgmt/fm12-ch-10-mini-case-fm12-ch-10-mini-case/1175384

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