James Polk Hospital has currently unused space in its lobby. In three years, the space will be required for

a planned expansion, but the hospital is considering uses of the space uaril then. The hospiral has decided

that it wants to purchase at least one and mayhe two fast food franchises, to take advantage of the high

volume of patients and visitors that walls through the lobby all day long. The bospital plans to purchase

the franchise$(3),$ operate them for three yvars, and then close themi donn. The bospital has narrowed its

selection down to rwo chivices:

Franchise L: Lisa's Soups, Salads, and Stuff

Franchise $5$: Sam's Wouderful Fried Chickea

The met cash flows shomi below include the costs of closing duen the framelhises in Year $3$ and the forecast

of how each franchise will do over the three$-$sear perind. Iranchise I. serves breakfact and hunch, while

Frapclise S serves ouly dinner, so it is persible fur the hospital to invest in horh franchises. The happital

belietes these franchives are perfiect complemenes to one another: The hospital could astract boch the

breakfasthunch and dinner crowis and both the health conscious and not $50$ health$-$concious crumbh withour ahe

framchius directly compering against one another. The corporate cest of capiral is $10$ percent

Ner eash mows

a$.$ Calculase sacti frachise's paybark peried, net prewent value $($NPI$),$ internal rate of return $($IKR$),$ and

medified internal rate of retsors $($MIRR$).$

b$.$ Graph the NPV of each franchise at differeat values of the corporate cost of capixal frome $0$ to $24$ percear in

$2$ percest increarats.

Hor sensitive are the tranclise NPVs to the corperate cost of capital?

Why do the franchiue NPIs differ in their seavitivity to the curporate cost of capital?

Af what cost of capital does each frawhise istersest the X axis? What are these valum?

c$.$ Which preject or projectes should be acosperd if they are indepeadent? Which project shoubd be acxopend if

they ar morualty exclosite?

Suppese the haspital coubl sell off the equigesent for each fraschise at the rad of ane year. Use NPY to

derermine the optinal wceaomic life of each franclibe whea the salhage valoers are an follows:

Salvage value

ANSWER