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 NPV profiles for franchises L and S and the discount rate do the profiles cross.

Question

Want to see the full answer?

Answer 1

Question

Chapter 12, Problem 5MC

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 NPV profiles for franchises L and S and the discount rate do the profiles cross.

b)

Summary Introduction

To determine: The franchise or franchises would be accepted when they are independent and mutually exclusive and whether the answer is accurate at any cost of capital fewer than 23.6%.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Don't solve. I mistakenly submitted blurr image please comment i will write values. please dont Solve with incorrect values otherwise unhelpful.

The image is blurr please comment i will write values. please dont Solve with incorrect values otherwise unhelpful.

Question 6 A five-year $50,000 endowment insurance for (60) has $1,000 underwriting expenses, 25% of the first premium is commission for the agent of record and renewal expenses are 5% of subsequent premiums. Write the gross future loss random variable: Presuming a portfolio of 10,000 identical and independent policies, the expected loss and the variance of the loss of the portfolio are given below (note that the premium basis is not given or needed): E[L] = 10,000(36,956.49 - 3.8786P) V[L] 10,000 (50,000 + 14.52P)². 0.00095 Find the premium that results in a 97.5% probability of profit (i.e. ¹ (0.975) = 1.96). Premium: Please show your work below

Answer 2

Question

Chapter 12, Problem 5MC

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 NPV profiles for franchises L and S and the discount rate do the profiles cross.

b)

Summary Introduction

To determine: The franchise or franchises would be accepted when they are independent and mutually exclusive and whether the answer is accurate at any cost of capital fewer than 23.6%.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 12, Problem 5MC

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 NPV profiles for franchises L and S and the discount rate do the profiles cross.

b)

Summary Introduction

To determine: The franchise or franchises would be accepted when they are independent and mutually exclusive and whether the answer is accurate at any cost of capital fewer than 23.6%.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 12, Problem 5MC

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 NPV profiles for franchises L and S and the discount rate do the profiles cross.

b)

Summary Introduction

To determine: The franchise or franchises would be accepted when they are independent and mutually exclusive and whether the answer is accurate at any cost of capital fewer than 23.6%.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 5

Chapter 12, Problem 5MC

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 NPV profiles for franchises L and S and the discount rate do the profiles cross.

b)

Summary Introduction

To determine: The franchise or franchises would be accepted when they are independent and mutually exclusive and whether the answer is accurate at any cost of capital fewer than 23.6%.

Answer 6

Chapter 12, Problem 5MC

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 NPV profiles for franchises L and S and the discount rate do the profiles cross.

Answer 7

Chapter 12, Problem 5MC

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 NPV profiles for franchises L and S and the discount rate do the profiles cross.

Answer 8

b)

Summary Introduction

To determine: The franchise or franchises would be accepted when they are independent and mutually exclusive and whether the answer is accurate at any cost of capital fewer than 23.6%.

Answer 9

b)

Summary Introduction

To determine: The franchise or franchises would be accepted when they are independent and mutually exclusive and whether the answer is accurate at any cost of capital fewer than 23.6%.

Answer 10

Expert Solution & Answer

Answer 11

Expert Solution & Answer

Answer 12

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 13

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 evaluates the NPV profiles for franchises L and S and determines whether they are independent and mutually exclusive.

Concept explainers

Videos

To determine: The franchise or franchises would be accepted when they are independent and mutually exclusive and whether the answer is accurate at any cost of capital fewer than 23.6%.

Want to see the full answer?

Chapter 12 Solutions