You and your business partners are looking for an investor to help you buy a franchise. If approved, you expect startup costs to be $700,000 in equipment that is depreciable to zero on a five-year MACRS schedule. Your plan is to start and operate the business for 7 years at the end of which time you expect to sell the business for $950,000. You expect to have initial working capital needs of $30,000, but these needs will remain proportionate to sales (they will grow at the same rate as sales grow). You expect sales in the first year to be $250,000 and that sales will grow by 10% per year. You project annual fixed operating expenses of $70,000 in the first year. These fixed expenses will grow by 8% per year. Your annual variable operating expenses are expected to be 40% of sales. You expect to pay taxes of 21%. Assume your required return is 14%.

After your initial pitch, imagine that I am impressed by what you have to say and ask you two follow-up questions. You are so well prepared, that you anticipated my questions and have calculations to back up your answers. Answer each question clearly and completely including references to tables you prepared in advance (part of the handout). a. Im concerned the projected sale price for the business is overly optimistic. What is the minimum business sales price at the end that still makes this proposal worthwhile? b. Due to the pandemic, I anticipate that costs might be higher than youve projected. Will the project be worthwhile if the variable costs are 50% of sales, rather than 40%?

Please calculate a. Income statements b. MACRS Depreciation Schedule c. Operating cash flow projections d. Total cash flows from assets projections e. Net present value estimates f. Alternate business pricing g. Analysis for change in variable costs: Your calculations must be such that you simply change one cell (to reflect the change in expectation about variable costs) and your spreadsheet recalculates everything.