You have just graduated from the MBA program of a large university, and one of your favorite

courses was $$Entrepreneurs Rally.$$ In fact, you enjoyed it so much that you have decided you want to $$be your own boss.$$ While you were in the master$$s program, your grandfather died and left you $$1\mathrm{.}5$ million to do with as you please. You are not an inventor, and you do not have a trade skill that you can market; however, you have decided that you would like to purchase at least one established franchise in the fast$-$foods area, maybe two $($if 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 $3$ years. After $3$ years you will go on to something else. You have narrowed your selection down to two choices: $(1)$ Franchise C$,$ Chifel$$s Soups, Salads & Stuff, and $(2)$ Franchise D$,$ Danny$$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 $3-$year period. Franchise C$$s cash flows will start off slowly but will increase rather quickly as people become more health$-$conscious, while Franchise D$$s cash flows will start off high but will trail off as other chicken competitors enter the marketplace and as people become more health$-$conscious and avoid fried foods. Franchise C serves breakfast and lunch whereas Franchise D 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 is the cash flow in thousands of dollars:

Franchise C:

Year Group $1$ Group $2$ Group $3$ Group $4$ Group $5$ Group $6$ Group $7$ Group $8$

$0-250-300-350-400-550-600-650-700$

$12530352055606570$

$2165200210250320450480520$

$3200240285320440510595655$

Franchise D:

Year Group $1$ Group $2$ Group $3$ Group $4$ Group $5$ Group $6$ Group $7$ Group $8$

$0-250-300-350-400-550-600-650-700$

$1170210240280380490520625$

$2125150175200275440495510$

$32530354055606570$

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 $12\mathrm{.}5\%.$ You must now determine

whether one or both franchises should be accepted.

a$.(1)$ What is each franchise$$s NPV$?$

$(2)$ According to NPV$,$ which franchise or franchises should be accepted if they are

independent? Mutually exclusive?

$(3)$ Would the NPVs change if the cost of capital changed to $10\%?$ If it would, what is the

new NPV$?$

b$.(1)$ What is each franchise$$s IRR?

$(2)$ According to IRR, which franchises should be accepted if they are independent?

Mutually exclusive?

$(3)$ Would the franchises$$ IRRs change if the cost of capital changed to $10\%?$ If it would,

what is the new IRR?

c$.(1)$ Draw NPV profiles for Franchises C and D$.$ At what discount rate do the profiles

cross?

$(2)$ Look at your NPV profile graph without referring to the actual NPVs and IRRs.

Which franchise or franchises should be accepted if they are independent? Mutually

exclusive? Explain. Are your answers correct at any cost of capital less than $23\mathrm{.}6\%?$

d$.$ Find the MIRRs for Franchises C and D$.$

e$.$ What are the PIs of Franchises C and D$?$

f$.(1)$ Find the paybacks for Franchises C and D$.$

$(2)$ According to the payback criterion, which franchise or franchises should be accepted

if the firm$$s maximum acceptable payback is $2$ years and if Franchises C and D are

independent? If they are mutually exclusive?

$(3)$ What is the discounted payback periods for Franchise C and D$?$

g$.$ In an unrelated analysis, you can choose between the following two mutually exclusive

projects, Project A $($which lasts for $2$ years$)$ and Project B $($which lasts for $4$ years$)$:

Project A:

Year Group $1$ Group $2$ Group $3$ Group $4$ Group $5$ Group $6$ Group $7$ Group $8$

$0-150,000-250000-300,000-400,000-550000-575000-605000350000$

$185,000160,000195,000260,000357000404,000486,000225,000$

$285,000160,000195,000260,000357000404,000486,000225,000$

Project B:

Year Column$1$ Column$2$ Column$3$ Column$4$ Column$5$ Column$6$ Column$7$ Column$8$

Group $1$ Group $2$ Group $3$ Group $4$ Group $5$ Group $6$ Group $7$ Group $8$

$0-150,000-250,000-300,000-400,000-550,000-575,000-605,000-350,000$

$143,00087,50097,500130,000180,000202,000243,000112,500$

$243,00087,50097,500130,000180,000202,000243,000112,500$

$343,00087,50097,500130,000180,000202,000243,000112,500$

$443,00087,50097,500130,000180,000202,000243,000112,500$

$($PLEASE HELP ME I WILL UP VOTE PLEASE!!! $)$