Youve recently won $500,000 in a lottery. It has always been a dream of yours to own a restaurant After completing a lot of research both online and at franchise shows, you have narrowed your choices down to two franchises. Each franchise sells only one meal combo and both franchises are located in the same town. Each franchise agreement will give you the right to operate the franchise for a 10 year period. You will be required to lease a building and to pay for any necessary leasehold improvements to the building. At the end of 10 years the franchise will revert back to the parent corporation. Both franchises allow you to keep any profit you

Required:

A. The next page of this assignment contains all of the information you will need to complete this part of the assignment.

B. Locate the Excel Spreadsheets titled Group Project Template. This template will contain your groups solution to the problems and must be uploaded in D2L drop box by the due date.

1. Calculate the breakeven volume of sales in units and in dollars for both alternatives (30 marks)

2. Calculate the breakeven volume of sales in units and in dollars for each franchise if your goal is to realize a profit of $100,000 in the first year of operations. (3 marks)

3. Identify the alternatives that have the highest and lowest risk and explain why. (3 marks)

4. Prepare a contribution margin format income statement showing the $100,000 profit. (7 marks)

5. Based on the financial information that you have prepared, explain which franchise you would choose to invest in? Give at least two reasons for your selection. (2 marks)

6. Excel formulas used for all calculations in question 1. (5 marks)

Company Financials:

Krazy Burger Co.						Sams Burgers
One Time Costs						One Time Costs
Franchise Fee			90,000.00			Franchise Fee			30,000.00
Leasehold Improvements			1,150,000.00			Leasehold Improvements			580,000.00
Annual Costs						Annual Costs
Insurance			9,000.00			Insurance			7,500.00
Utilities			52,000.00			Utilities			26,000.00
Maintenance			26,000.00			Maintenance			10,000.00
Property Tax			41,000.00			Property Tax			17,000.00
Administration			9,000.00			Administration			7,000.00
Advertising			22,000.00			Advertising			25,000.00
Combo Information						Combo Information
Combo Price			7.50			Combo Price			9.25
Food costs			3.00			Food costs			4.05
Labour cost			2.25			Labour cost			2.05
Royalty			3.5 % sales			Royalty			5% of sales
Income Tax Rate Annually			25%			Income Tax Rate annually 25%			25%
Interest rate on True North						Interest rate on True North
Loan			8%			Loan 8%			8%