Case study: Capital Budgeting Decisions

You have narrowed your selection down to two choices: (1) Franchise L, Lisa's Soups, Salads, & Stuff, and (2) Franchise S, Sam's Fabulous Fried Chicken. The net cash flows shown below include the price you would receive for selling the franchise in Year 3 and the forecast of how each franchise will do over the 3 years.

Franchise L's cash flows will start slowly but will increase rather quickly as people become more health-conscious, while Franchise S's cash flows will start high but will trail off as other chicken competitors enter the marketplace and as people become more health-conscious and avoid fried foods. Franchise L serves breakfast and lunch whereas Franchise S serves only dinner, so you can invest in both franchises. You see these franchises as perfect complements to one another: You could attract both the lunch and dinner crowds and the health-conscious and not so-health-conscious crowds without the franchises directly competing against one another. Here are the net cash flows (in thousands of dollars):

cash flow attached as image.

Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows. You also have made subjective risk assessments of each franchise and concluded that

both franchises have risk characteristics that require a return of 10%. You must now determine whether one or both of the franchises should be accepted.

Required:

a)What is each franchise's NPV?

b)What is each franchise's IRR?

c)Why NPV ranking criterion is considered better than the IRR ranking criterion for ranking investment projects?

please show working steps as it is hard for me to understand fully on excel sheet

Here are the net cash flows (in thousands of dollars): Expected Net Cash Flows Year Franchise L Franchise S O -$100 $100 10 70 W N 60 50 80 20