eleven. 04. 2010
Chapter twelve. Mini Circumstance
You may have just graduated from the MBA program of a giant university, and one of your favorite courses was " Modern-day Entrepreneurs. " In fact , you enjoyed that so much you have decided you want to " be your own boss. " While you had been in the master's program, the grandfather passed away and kept you $1 million to do with as you may please. You're not an creator, and you do not have a trade skill that you can market; yet , you have decided that you would like to purchase for least one particular established operation in the fast-foods area, maybe two (if profitable). The problem is that you have under no circumstances been that you stay with any kind of project pertaining to too long, therefore you figure that your time frame is 36 months. After 3 years you will go on to something different.
" You have narrowed your selection into two choices: (1) Business L, Lisa's Soups, Salads, & Products, and (2) Franchise T, Sam's Fabulous Fried Chicken. The net cash flows proven below include the price you would probably receive pertaining to selling the franchise in Year 3 and the outlook of how each franchise can do over the 3-year period. Operation L's cash flows will start off gradually but will maximize rather quickly since people be health conscious, whilst Franchise S's cash runs will start away high but actually will trail off as different chicken competitors enter the market place and as persons become more health-conscious and avoid deep-fried foods. Operation L provides breakfast and lunch, while Franchise T serves only dinner, it is therefore possible for you to invest in both franchises. You observe these franchises as best complements to one another: You could entice both the lunch break and meal crowds as well as the health conscious and not so health conscious crowds without the franchises directly competing against one another. Allow me to share the net funds flows (in thousands of dollars): "
Anticipated Franchise T
Net Cash Flows
Year (t)Franchise SFranchise D 0 you 2 a few
0 ($100)($100)-100 70 60 20
1 seventy 10
2 55 60 Business L
several 20 eighty
0 one particular 2 3
-100 twelve 60 80
Depreciation, salvage values, net working capital requirements, and tax effects are all contained in these cash flows. You need to made very subjective risk checks of each business and concluded that both franchises have risk characteristics that require a return of 10%. You have to now identify whether much more both of the franchises must be accepted.
a. What is capital budgeting? Solution: See Section 10 Tiny Case Present
b. What is the difference among independent and mutually exclusive tasks? Answer: Discover Chapter twelve Mini Circumstance Show
c. (1. ) Define the definition of net present value (NPV). What is every franchise's NPV?
Net Present Value (NPV)
To compute the NPV, we find the modern day value of the individual cash moves and find the sum of the people discounted money flows. This kind of value symbolizes the value the project increase shareholder riches.
Franchise S i9000
Time period: zero 1 two 3
Cash flow: -100 70 40 20
Disc. cash flow: -100 sixty four 41 15
NPV(S) =$19, 98 = Amount disc. CF's. or $19, 98 sama dengan Uses NPV function.
Time frame: 0 1 2 three or more
Earnings: -100 twelve 60 70
Compact disk. cash flow: -100 9 55 60
NPV(L) =$18, 78 $18, 78 sama dengan Uses NPV function.
" (2. ) What is the rationale behind the NPV approach? According to...
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