You have just graduated from the MBA program of a large university, and one of your favorite courses was "Today's Entrepreneurs." In fact, you enjoyed it so much you have decided you want to "be your own boss." While you were in the master's program, you inherited $1 million to do with as you please. You have decided that you would like to purchase at least one established franchise in the fast-foods area, maybe two (if it is profitable). The problem is that you have never been one to stay with any project for too long, so you figure that your time frame is three years. After three years, you will sell off your investment and go on to something else. You have narrowed your selection down to two choices: (1) Franchise L, Lisa's Soups, Salads, & Stuff and (2) Franchise S, Sam's Fabulous Fried Chicken. The net cash flows shown below include the price you would receive for selling the franchise in Year 3 and the forecast of how each franchise will do over the three-year period. Franchise L's cash flows will start off slowly but will increase rather quickly as people become more health conscious, while Franchise S's cash flows will start off high but will trail off as other chicken competitors enter the market place and as people become more health conscious and avoid fried foods. Franchise L serves breakfast and lunch, while Franchise S serves only dinner, so it is possible for you to invest in both franchises. You see these franchises as perfect complements to one another: You could attract both the lunch and dinner crowds and the health conscious and not so health conscious crowds without the franchises directly competing against one another. Here are the net cash flows (in thousands of dollars): Here are the net cash flows (in thousands of dollars):

		Expected Net Cash Flows ($ thousands)
	Year		Franchise L		Franchise S
	0		-600		-620
	1		60		420
	2		360		300
	3		480		120

Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows. You also have made subjective risk assessments of each franchise, and concluded that both franchises have risk characteristics that require a return of 5%. You must now determine whether one or both of the franchises should be accepted. Answer the following questions: 1) Calculate each franchise's NPV 2) According to NPV, which franchise should be accepted if they are independent? What if they are mutually exclusive? (assume that you have enough money to invest in both projects) 3) calculate the IRR for each franchise 4) What is the payback period for each investment? 5) Find MIRR and profitability index for each franchise. 6) Find the crossover rate. IF the projects are mutually exclusive, would your decision change if the cost of capital is 15% (instead of 5%)? Explain. 7) Now, given that you only inherited one million dollars, and assuming that the projects are independents, in what franchise(s) would you invest? May you still invest in two franchises (if they are profitable)? If so, how? What problems may arise if you do not have enough money to fund your projects? Explain.