Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Mr. Conservative and Ms. Cowboy each have $500K to spend on Chipotle (CMG) franchises. Chipotle is offering franchises for $500K each. Mr. C purchases one
Mr. Conservative and Ms. Cowboy each have $500K to spend on Chipotle (CMG) franchises. Chipotle is offering franchises for $500K each. Mr. C purchases one franchise with his $500K. Ms. C purchases two franchises, by using $250K of her own funds for each franchise and having each franchise take out a loan of $250K to pay Chipotle. The loans are very-long term, from Wells Fargo, with 10% annual interest. Here is more relevent financial information: Projected annual IS As purchased by for a single franchise Mr C Ms C Sales 500.00 500.00 Op. exp. -350.00 -350.00 Interest 0.001 EBT 150.00 -31.25 Tax NI per franchise -37.50 112.801 23 13 Which investor will enjoy the higher ROE? (Hint: For both investors, ROEs are the same on both per-franchise and total-franchises bases). Both ratios are the same O Ms. C. O Mr. C. 0 Not enough information is provided to answer this question. 24 13 On a total franchise basis (one for Mr. C and two for Ms. C), who enjoys the larger NI? O Mr. C. Not enough information is provided to answer this question O Both are the same. O Ms. C 25 15 On a per-franchise basis, which investor enjoys the larger NI? O Not enough information is provided to answer this question. Ms. C. O Mr. C. Both are the same. 26 19 In a future year (not shown in the above projections), when sales at all CMG franchises drop by 50% or more, which investor's franchise(s) are at the most risk of going bankrupt? Choose one investor and one reason for your answer. The velocity of money causes this whenever times are bad. This investor suffers from lack of diversification. This investor must pay loan interest irrespective of the level of revenue received. The lender may go bankrupt. Ms. C. As computed from the above projections, this investor's ROE is lower. Mr. C. 27 13 What is the projected Nl per franchise for Ms. C? round your answer to two decimal places
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started