Here Are The Net Cash Flows (in Thousands Of Dollars): PLEASE SHOW WORK

Expected Net Cash Flows

Year Franchise L Franchise S

0 ($120) ($120)

1 20 90

2 70 15

3 85 60

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 14%. You must now determine whether one or both of the franchises should be accepted.

5. What is each franchises IRR?

6. What is the logic behind the IRR method? According to IRR, which franchises should be accepted if they are independent? Mutually exclusive?

7. Would the franchises IRRs change if the cost of capital changed?

8. Draw NPV profiles for Franchises L and S. At what discount rate do the profiles cross? 9which franchise or franchises should be accepted if the firms maximum acceptable payback is 2 years, and if Franchises L and S are independent? If they are mutually exclusive?