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 profitability index (PI) of each franchises and the definition of PI.

Question

Want to see the full answer?

Answer 1

Question

Chapter 12, Problem 8MC

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 profitability index (PI) of each franchises and the definition of PI.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Question 3 Footfall Manufacturing Ltd. reports the following financial information at the end of the current year: Net Sales $100,000 Debtor's turnover ratio (based on 2 net sales) Inventory turnover ratio 1.25 Fixed assets turnover ratio 0.8 Debt to assets ratio 0.6 Net profit margin 5% Gross profit margin 25% Return on investment 2% Use the given information to fill out the templates for income statement and balance sheet given below: Income Statement of Footfall Manufacturing Ltd. for the year ending December 31, 20XX (in $) Sales 100,000 Cost of goods sold Gross profit Other expenses Earnings before tax Tax @50% Earnings after tax Balance Sheet of Footfall Manufacturing Ltd. as at December 31, 20XX (in $) Liabilities Amount Assets Amount Equity Net fixed assets Long term 50,000 Inventory debt Short term debt Debtors Cash TOTAL TOTAL

Toodles Inc. had sales of $1,840,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $1,180,000, $185,000 and $365,000 respectively. In addition, the company had an interest expense of $280,000 and a tax rate of 35 percent. (Ignore any tax loss carry-back or carry-forward provisions.) Arrange the financial information for Toodles Inc. in an income statement and compute its OCF? All computations must be done and shown manually. Kindly no spreadsheetcomputations. So that I am able to follow and understand clearly please.

Jingle Ltd. and Bell Ltd. belong to the same industry. A snapshot of some of their financial information is given below: Jingle Ltd. Bell Ltd. Current ratio 3.2 1 2 1 Acid-test ratio 1.7 1 1.1 1 Debt Equity ratio 30% 40% Times interest earned 6 5 You are a loans officer and both companies have asked for an equal 2-year loan. i) ii) If you could facilitate only one loan, which company would you refuse? Explain your reasoning briefly If both companies could be facilitated, would you be willing to do so? Explain your argument briefly.