You and your business partners are considering applying for a franchise. If approved, you expect startup costs to be $650,000 in equipment that is depreciable. You will use a 5-year MARCUS method to depreciate the $650,000 equipment. Your plan is to start and operate the business for 6 years at which time you expect to sell the business for $1,000,000. You expect to initially have working capital needs of $25,000, but these have additional needs by $6,000 per year in the 6 years. You expect sales in the first year to be $350,000 and that sales will grow by 12% per year. You project annual fixed operating expenses of $50,000 in the first year. These fixed expenses will grow by $5,000 per year. Your annual variable operating expenses are expected to be 50% of sales. You expect to pay taxes of 21%. Assume your required return is 12%. Should you apply for a Guthrie's Franchise? Prepare a report responding to the following prompts: 1. Prepare pro forma income statements and operating cash flow projections. Explain your pro forma statements in your report. D E F G H K 650,000 a. income statement 4 5 3 439040 year sales fixed costs variable cost Depreciation EBIT Tax 2 350,000 392000 50,000 55,000 175000 196000 130000 208000 -5,000 -67,000 -1050 - 14070 -3,950 -52,930 Net income OCF=EBIT+D-Tax OCF 126,050 155,070 D rate 20% 32% 19.20% 11.52% 11.5296 5.76% +