Person X is graduated from large university. He desired to become an entrepreneur. After death of his grandfather he got a business worth of $1million. Then he decided to buy minimum one franchise in the area of fast foods.an issue behind is that he will sell off investment after 3 years and go on to something else. Person X has two alternatives franchise L and franchise S. Franchise L providing breakfast and lunch while franchise S is providing only dinner. Person X made evaluation of each franchise and find out that both have characteristics of risk and needs rate of return of 10%. Here are the net cash flows (in thousand $) To determine: The definition of internal rate of return and the IRR of each franchise’s.

Question

Would the franchises’ IRRs change if the costof capital changed?

Answer 1

Question

Chapter 12, Problem 4MC

a)

Summary Introduction

Case summary:

Person X is graduated from large university. He desired to become an entrepreneur. After death of his grandfather he got a business worth of $1million. Then he decided to buy minimum one franchise in the area of fast foods.an issue behind is that he will sell off investment after 3 years and go on to something else.

Person X has two alternatives franchise L and franchise S. Franchise L providing breakfast and lunch while franchise S is providing only dinner. Person X made evaluation of each franchise and find out that both have characteristics of risk and needs rate of return of 10%.

Here are the net cash flows (in thousand $)

To determine: The definition of internal rate of return and the IRR of each franchise’s.

b)

Summary Introduction

To determine: The relationship between IRR and YTM and IRR if equal cash inflow of $40.

c)

Summary Introduction

To determine: The logic behind the IRR method and the franchises must be accepted if they are independent and equally exclusive.

d)

Summary Introduction

To determine: Whether IRR changes with respect to change in cost of capital.

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Answer 2

Question

Chapter 12, Problem 4MC

a)

Summary Introduction

Case summary:

Person X is graduated from large university. He desired to become an entrepreneur. After death of his grandfather he got a business worth of $1million. Then he decided to buy minimum one franchise in the area of fast foods.an issue behind is that he will sell off investment after 3 years and go on to something else.

Person X has two alternatives franchise L and franchise S. Franchise L providing breakfast and lunch while franchise S is providing only dinner. Person X made evaluation of each franchise and find out that both have characteristics of risk and needs rate of return of 10%.

Here are the net cash flows (in thousand $)

To determine: The definition of internal rate of return and the IRR of each franchise’s.

b)

Summary Introduction

To determine: The relationship between IRR and YTM and IRR if equal cash inflow of $40.

c)

Summary Introduction

To determine: The logic behind the IRR method and the franchises must be accepted if they are independent and equally exclusive.

d)

Summary Introduction

To determine: Whether IRR changes with respect to change in cost of capital.

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Answer 3

Question

Chapter 12, Problem 4MC

a)

Summary Introduction

Case summary:

Person X is graduated from large university. He desired to become an entrepreneur. After death of his grandfather he got a business worth of $1million. Then he decided to buy minimum one franchise in the area of fast foods.an issue behind is that he will sell off investment after 3 years and go on to something else.

Person X has two alternatives franchise L and franchise S. Franchise L providing breakfast and lunch while franchise S is providing only dinner. Person X made evaluation of each franchise and find out that both have characteristics of risk and needs rate of return of 10%.

Here are the net cash flows (in thousand $)

To determine: The definition of internal rate of return and the IRR of each franchise’s.

b)

Summary Introduction

To determine: The relationship between IRR and YTM and IRR if equal cash inflow of $40.

c)

Summary Introduction

To determine: The logic behind the IRR method and the franchises must be accepted if they are independent and equally exclusive.

d)

Summary Introduction

To determine: Whether IRR changes with respect to change in cost of capital.

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Answer 4

Question

Chapter 12, Problem 4MC

a)

Summary Introduction

Case summary:

Person X is graduated from large university. He desired to become an entrepreneur. After death of his grandfather he got a business worth of $1million. Then he decided to buy minimum one franchise in the area of fast foods.an issue behind is that he will sell off investment after 3 years and go on to something else.

Person X has two alternatives franchise L and franchise S. Franchise L providing breakfast and lunch while franchise S is providing only dinner. Person X made evaluation of each franchise and find out that both have characteristics of risk and needs rate of return of 10%.

Here are the net cash flows (in thousand $)

To determine: The definition of internal rate of return and the IRR of each franchise’s.

b)

Summary Introduction

To determine: The relationship between IRR and YTM and IRR if equal cash inflow of $40.

c)

Summary Introduction

To determine: The logic behind the IRR method and the franchises must be accepted if they are independent and equally exclusive.

d)

Summary Introduction

To determine: Whether IRR changes with respect to change in cost of capital.

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Answer 5

Chapter 12, Problem 4MC

a)

Summary Introduction

Case summary:

Person X is graduated from large university. He desired to become an entrepreneur. After death of his grandfather he got a business worth of $1million. Then he decided to buy minimum one franchise in the area of fast foods.an issue behind is that he will sell off investment after 3 years and go on to something else.

Person X has two alternatives franchise L and franchise S. Franchise L providing breakfast and lunch while franchise S is providing only dinner. Person X made evaluation of each franchise and find out that both have characteristics of risk and needs rate of return of 10%.

Here are the net cash flows (in thousand $)

To determine: The definition of internal rate of return and the IRR of each franchise’s.

b)

Summary Introduction

To determine: The relationship between IRR and YTM and IRR if equal cash inflow of $40.

c)

Summary Introduction

To determine: The logic behind the IRR method and the franchises must be accepted if they are independent and equally exclusive.

d)

Summary Introduction

To determine: Whether IRR changes with respect to change in cost of capital.

Answer 6

Chapter 12, Problem 4MC

a)

Summary Introduction

Case summary:

Person X is graduated from large university. He desired to become an entrepreneur. After death of his grandfather he got a business worth of $1million. Then he decided to buy minimum one franchise in the area of fast foods.an issue behind is that he will sell off investment after 3 years and go on to something else.

Person X has two alternatives franchise L and franchise S. Franchise L providing breakfast and lunch while franchise S is providing only dinner. Person X made evaluation of each franchise and find out that both have characteristics of risk and needs rate of return of 10%.

Here are the net cash flows (in thousand $)

To determine: The definition of internal rate of return and the IRR of each franchise’s.

Answer 7

Chapter 12, Problem 4MC

a)

Summary Introduction

Case summary:

Person X is graduated from large university. He desired to become an entrepreneur. After death of his grandfather he got a business worth of $1million. Then he decided to buy minimum one franchise in the area of fast foods.an issue behind is that he will sell off investment after 3 years and go on to something else.

Person X has two alternatives franchise L and franchise S. Franchise L providing breakfast and lunch while franchise S is providing only dinner. Person X made evaluation of each franchise and find out that both have characteristics of risk and needs rate of return of 10%.

Here are the net cash flows (in thousand $)

To determine: The definition of internal rate of return and the IRR of each franchise’s.

Answer 8

b)

Summary Introduction

To determine: The relationship between IRR and YTM and IRR if equal cash inflow of $40.

Answer 9

b)

Summary Introduction

To determine: The relationship between IRR and YTM and IRR if equal cash inflow of $40.

Answer 10

c)

Summary Introduction

To determine: The logic behind the IRR method and the franchises must be accepted if they are independent and equally exclusive.

Answer 11

c)

Summary Introduction

To determine: The logic behind the IRR method and the franchises must be accepted if they are independent and equally exclusive.

Answer 12

d)

Summary Introduction

To determine: Whether IRR changes with respect to change in cost of capital.

Answer 13

d)

Summary Introduction

To determine: Whether IRR changes with respect to change in cost of capital.

Answer 14

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Ch. 12 - What types of projects require the least detailed...Ch. 12 - Prob. 3Q Ch. 12 - Prob. 4Q Ch. 12 - Prob. 5Q Ch. 12 - A project has an initial cost of 40,000, expected...Ch. 12 - IRR Refer to Problem 12-1. What is the projects...Ch. 12 - Prob. 3P Ch. 12 - Prob. 4P Ch. 12 - Prob. 5P Ch. 12 - Prob. 6P

Solution Summary: The author analyzes the internal rate of return and the IRR of each franchise.

To determine: The relationship between IRR and YTM and IRR if equal cash inflow of $40.

To determine: The logic behind the IRR method and the franchises must be accepted if they are independent and equally exclusive.

To determine: Whether IRR changes with respect to change in cost of capital.

Chapter 12 Solutions