Part A. You goal is to perform an NPV \& investment criteria analysis of a Tim Horton's franchise in NS. Assume $500,000 in annual sales in year 1 growing linearly to $1,500,000 in sales in year 5 and staying flat after that, build a sales-driven model. You will have to construct a hypothetical income statement and estimate cash flows generated by the business. After you perform NPV analysis, internal rate of return, estimate payback, discounted payback, profitability ratio. Assumptions 2 : - further, the following information was gathered from Tim Hortons website regarding costs of starting a franchise itn Canada: - royalty fee of 4.5% of gross sales - rental fee: your rental fee is 170,000 . Assume that this is fixed cost that does not vary with sales - advertising fee of 4% of gross sales - working capital investment of $50,000 and equipment purchase is $450,000 - at least two partners; assume annual salary of $40,000 per partner. Further, more data was collected from other sources: - assume cost of goods sold of 60% of gross sales - assume straight-line depreciation of 10% of total itnvestment on equipment purchase of $450,000 - corporate tax rate is 15.5%. Losses, if any, are tax deductible over 20 -year period 2 Additional cost of capital assumptions: - assume cost of debt of 7% - cost of equity is estimated using yield-plus-risk-premium approach; use historical or implied equity risk premium - debt-to-equity ratio equals one (1.0) You may use template on the next page for youx estimates. Note: I built an excel worksheet with four tabs - assumptions, NPV \& other investment criteria, NPV under inflation, and tax loss carryforwards. Part B. Perform NPV analysis only, assuming inflation rate of 4% a year. Note that some of your entries from part A will be affected by inflation directly, some other through sales, and yet the third category will remain unaffected. Part A. You goal is to perform an NPV \& investment criteria analysis of a Tim Horton's franchise in NS. Assume $500,000 in annual sales in year 1 growing linearly to $1,500,000 in sales in year 5 and staying flat after that, build a sales-driven model. You will have to construct a hypothetical income statement and estimate cash flows generated by the business. After you perform NPV analysis, internal rate of return, estimate payback, discounted payback, profitability ratio. Assumptions 2 : - further, the following information was gathered from Tim Hortons website regarding costs of starting a franchise itn Canada: - royalty fee of 4.5% of gross sales - rental fee: your rental fee is 170,000 . Assume that this is fixed cost that does not vary with sales - advertising fee of 4% of gross sales - working capital investment of $50,000 and equipment purchase is $450,000 - at least two partners; assume annual salary of $40,000 per partner. Further, more data was collected from other sources: - assume cost of goods sold of 60% of gross sales - assume straight-line depreciation of 10% of total itnvestment on equipment purchase of $450,000 - corporate tax rate is 15.5%. Losses, if any, are tax deductible over 20 -year period 2 Additional cost of capital assumptions: - assume cost of debt of 7% - cost of equity is estimated using yield-plus-risk-premium approach; use historical or implied equity risk premium - debt-to-equity ratio equals one (1.0) You may use template on the next page for youx estimates. Note: I built an excel worksheet with four tabs - assumptions, NPV \& other investment criteria, NPV under inflation, and tax loss carryforwards. Part B. Perform NPV analysis only, assuming inflation rate of 4% a year. Note that some of your entries from part A will be affected by inflation directly, some other through sales, and yet the third category will remain unaffected
