company is offering an exciting opportunity to start and operate a successful business (and make a whole bunch of money doing it).

The business operates as follows. The owner uses the franchising companys financial analysis software system to prepare and present to clients a detailed evaluation of the clients operating results. Not only can you do standard vertical and horizontal analysis, but you can also give your clients data that compares their company to other companies of the same size in their industry.

You will be able to charge $500 per study on average.

The terms are: You pay an up-front fee to license their system and lock-in your territory. The up-front fee is $75,000. In addition, you pay $125 for each financial analysis that you run on their software.

Additionally, you will incur costs to deliver and market the studies. The delivery and other out-of-pocket costs will be approximately $100 per study.

Since you do not have $75,000 of cash available, you have obtained a loan for the $75,000. The loan will require you to make annual payments of $8,500 for the next ten years.

You can ignore the depreciation cost for the franchise investment or for any computer equipment.

Required:

Part one. Is this a good business opportunity? Prepare an evaluation and a recommendation. What is the breakeven level, and how many studies do you have to do to earn $40,000 per year?

Part two. Things are going well. You have decided to expand a bit and have rented an office, installed a phone line, and have set up a website.

The costs (monthly) are:

office rent $350

telephone 85

website 35

Using the Part two information, how does this change the analysis in Part One? What volume is needed to break even? What volume is needed to earn $40,000 per year?