Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The year 2022 now needs to be considered even before the business is launched. CompuTech could decide to expand its business. They have the choice
The year 2022 now needs to be considered even before the business is launched. CompuTech could decide to expand its business. They have the choice of taking out a competitor in their community and expanding their market presence or they can open a second business which is
a franchise opportunity.
For the first option, the takeover cost would be an investment of $300,000 and would result in direct net cash flow of $60,000 per year beginning in the second year of ownership. No net cash flow is expected in the first year as takeover expenses would offset any proceeds.
The second option involves franchising at a cost of $75,000 per year with the potential to bring in $100,000 of net cash flow in each year, beginning in year 2. No proceeds are forecast in year
1. The franchise would run for only 8 years.
If the CompuTech's cost of capital is 7% which of the options available to the Martins would you consider recommending? Use Payback, NPV, and IRR calculations to support your answer.
(use excel and show the calculations step by step)
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