Jonathan Lark's lifelong dream is to own a restaurant. He owns a premium site for a restaurant across the street from the local university. Now he needs to decide what kind of restaurant to open. Recently, Jonathan began to investigate one of the fastest-growing fast-food franchises in the country, Pepper Roni Pizza. A Pepper Roni Pizza franchise costs $81.600, an amount that is amortized over 15 years. As a franchisee, Jonathan would need to adhere to the company's building specifications. The building would cost an estimated $1.224,000 and would have a $136,000 salvage value at the end of its 15-year life. The restaurant equipment (fryers, steam tables, booths, counters) is sold as a package by the corporate office at a cost of $200,000, will have a salvage value of $27.200 at the end of its five-year life, and must be replaced every five years Jonathan estimates the annual revenue from a Pepper Roni Pizza franchise at $2,584.000. Food costs typically run 36% of revenue. Annual operating expenses, not including depreciation, total $1.156.000. For financial reporting purposes, Jonathan will use straight-line depreciation and amortization. Based on past experience, he uses an 16% discount rate. Click here to view the factor table. (a) Your Answer Correct Answer (Used) Calculate the restaurant's net present value over the franchise's 15-year life. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, eg. 58,971.) Net present value 1,165,826 (b) Use Excel or a similar spreadsheet application to calculate the restaurant's internal rate of return over the franchise's 15 year life. (Round answer to 2 decimal places, eg. 15.25%) Internal rate of return eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Arswer
Jonathan Lark's lifelong dream is to own a restaurant. He owns a premium site for a restaurant across the street from the local university. Now he needs to decide what kind of restaurant to open. Recently, Jonathan began to investigate one of the fastest-growing fast-food franchises in the country, Pepper Roni Pizza. A Pepper Roni Pizza franchise costs $81.600, an amount that is amortized over 15 years. As a franchisee, Jonathan would need to adhere to the company's building specifications. The building would cost an estimated $1.224,000 and would have a $136,000 salvage value at the end of its 15-year life. The restaurant equipment (fryers, steam tables, booths, counters) is sold as a package by the corporate office at a cost of $200,000, will have a salvage value of $27.200 at the end of its five-year life, and must be replaced every five years Jonathan estimates the annual revenue from a Pepper Roni Pizza franchise at $2,584.000. Food costs typically run 36% of revenue. Annual operating expenses, not including depreciation, total $1.156.000. For financial reporting purposes, Jonathan will use straight-line depreciation and amortization. Based on past experience, he uses an 16% discount rate. Click here to view the factor table. (a) Your Answer Correct Answer (Used) Calculate the restaurant's net present value over the franchise's 15-year life. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, eg. 58,971.) Net present value 1,165,826 (b) Use Excel or a similar spreadsheet application to calculate the restaurant's internal rate of return over the franchise's 15 year life. (Round answer to 2 decimal places, eg. 15.25%) Internal rate of return eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Arswer
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Jonathan Lark's lifelong dream is to own a restaurant. He owns a premium site for a restaurant across the street from the local
university. Now he needs to decide what kind of restaurant to open.
Recently, Jonathan began to investigate one of the fastest growing fast-food franchises in the country, Pepper Roni Pizza. A Pepper
Roni Pizza franchise costs $81.600, an amount that is amortized over 15 years. As a franchisce, Jonathan would need to adhere to
the company's building specifications. The building would cost an estimated $1.224,000 and would have a $136,000 salvage value
at the end of its 15-year life. The restaurant equipment (fryers, steam tables, booths, counters) is sold as a package by the corporate
office at a cost of $200.000, will have a salvage value of $27.200 at the end of its five-year life, and must be replaced every five
years
Jonathan estimates the annual revenue from a Pepper Roni Pizza tranchise at $2,584.000. Food costs typically run 36% of revenue.
Annual operating expenses, not including depreciation, total $1.156.000. For financial reporting purposes, Jonathan will use
straight line depreciation and amortization. Based on past experience, he uses an 16% discount rate.
Click here to view the factor table.
(a)
Your Answer
Correct Answer (Used)
Calculate the restaurant's net present value over the franchise's 15 year life. (For calculation purposes, use 4 decimal places as
displayed in the factor table provided and round final answer to 0 decimal place, eg. 58,971)
Net present value
1,165,826
(b)
Use Excel ora similar spreadsheet application to calculate the restaurant's internal rate of return over the franchise's 15 year
life. (Round answer to 2 decimal places, eg. 15.25%)
Internal rate of return
eTextbook and Media
Save for Later
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