Eatzys, an SLC-based upscale sandwich restaurant, has recently released financial information relating to franchise store op

1.What is the estimated annual royalty fee that will be paid to Eatzy's should Neo decide to become a franchisee? Recall that the fee is 5% of sales over and above the breakeven sales. For example, if the sales are $120,000 and the breakeven sales are $20,000, the royalty fee would be 5%*(120,000-20,000)=5,000.

2.What is the estimated annual net income of an Eatzy's franchise store should Neo decide to become a franchisee?

3.If Neo decides to become a franchisee, from the perspective of Neo's shareholders (owning both Neo and the franchise store), do you think Neo should allocate corporate fixed overhead cost to the Eatzys franchise (i.e., from Neo to the franchise)? Explain your answer. Hint: think about what happens to royalty fees if Neo allocates corporate FOH to the franchise. Neos FOH is a cost in addition to the costs discussed above in the fact patterns.

4.What is the residual income of an Eatzy's franchise store for the first year of operation should Neo decide to become a franchisee? Use the acquisition cost as the investment base for the first year of operation.

5.What is the return on investment of an Eatzy's franchise store for the first year of operation, should Neo decide to become a franchisee? Use the acquisition cost as the investment base for the first year of operation. (If your answer is 15%, enter as 15).

6.Should Neo invest in the Eatzy's franchise considering the residual income and the return on investment of an Eatzy's franchise store? Explain your answer.

7.Executives at Neo are paid annual cash bonuses based on the following formula: Bonus = ($800 x Years of Service) + ($100,000 x ROI), where ROI = Return on Investment Are the incentives of Neo executives aligned with Neo shareholders with respect to the decision of whether or not to invest in the Eatzy's franchise? Explain your answer.