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 payback period and its meaning.

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Answer 1

Question

Chapter 12, Problem 9MC

1)

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 payback period and its meaning.

2)

Summary Introduction

To determine: The rationale for the payback period technique and the franchise or franchises must be accepted if the company’s supreme acceptable payback is 2 years and is both franchises are independent or mutually exclusive.

3)

Summary Introduction

To determine: The variance among the regular and discounted payback periods.

4)

Summary Introduction

To determine: The main demerit of discounted payback and the payback method of real usefulness in capital budgeting decisions.

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Estefan Industies has a new project available that requires an initial investment of sex million. The project will provide unlevered cash flows of $925,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of 35. The company's bonds have a YTM of 5.9 percent. The companies with operations comparable to this project have unlevered betas of 1.09, 1.17, 1.28, and 1.20. The risk-free rate is 3.6 percent, and the market risk premium is 7 percent. The tax rate is 21 percent. What is the NPV of this project?

Answer 2

Question

Chapter 12, Problem 9MC

1)

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 payback period and its meaning.

2)

Summary Introduction

To determine: The rationale for the payback period technique and the franchise or franchises must be accepted if the company’s supreme acceptable payback is 2 years and is both franchises are independent or mutually exclusive.

3)

Summary Introduction

To determine: The variance among the regular and discounted payback periods.

4)

Summary Introduction

To determine: The main demerit of discounted payback and the payback method of real usefulness in capital budgeting decisions.

Expert Solution & Answer

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Answer 3

Question

Chapter 12, Problem 9MC

1)

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 payback period and its meaning.

2)

Summary Introduction

To determine: The rationale for the payback period technique and the franchise or franchises must be accepted if the company’s supreme acceptable payback is 2 years and is both franchises are independent or mutually exclusive.

3)

Summary Introduction

To determine: The variance among the regular and discounted payback periods.

4)

Summary Introduction

To determine: The main demerit of discounted payback and the payback method of real usefulness in capital budgeting decisions.

Expert Solution & Answer

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Answer 4

Question

Chapter 12, Problem 9MC

1)

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 payback period and its meaning.

2)

Summary Introduction

To determine: The rationale for the payback period technique and the franchise or franchises must be accepted if the company’s supreme acceptable payback is 2 years and is both franchises are independent or mutually exclusive.

3)

Summary Introduction

To determine: The variance among the regular and discounted payback periods.

4)

Summary Introduction

To determine: The main demerit of discounted payback and the payback method of real usefulness in capital budgeting decisions.

Expert Solution & Answer

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Answer 5

Chapter 12, Problem 9MC

1)

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 payback period and its meaning.

2)

Summary Introduction

To determine: The rationale for the payback period technique and the franchise or franchises must be accepted if the company’s supreme acceptable payback is 2 years and is both franchises are independent or mutually exclusive.

3)

Summary Introduction

To determine: The variance among the regular and discounted payback periods.

4)

Summary Introduction

To determine: The main demerit of discounted payback and the payback method of real usefulness in capital budgeting decisions.

Answer 6

Chapter 12, Problem 9MC

1)

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 payback period and its meaning.

Answer 7

Chapter 12, Problem 9MC

1)

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 payback period and its meaning.

Answer 8

2)

Summary Introduction

To determine: The rationale for the payback period technique and the franchise or franchises must be accepted if the company’s supreme acceptable payback is 2 years and is both franchises are independent or mutually exclusive.

Answer 9

2)

Summary Introduction

To determine: The rationale for the payback period technique and the franchise or franchises must be accepted if the company’s supreme acceptable payback is 2 years and is both franchises are independent or mutually exclusive.

Answer 10

3)

Summary Introduction

To determine: The variance among the regular and discounted payback periods.

Answer 11

3)

Summary Introduction

To determine: The variance among the regular and discounted payback periods.

Answer 12

4)

Summary Introduction

To determine: The main demerit of discounted payback and the payback method of real usefulness in capital budgeting decisions.

Answer 13

4)

Summary Introduction

To determine: The main demerit of discounted payback and the payback method of real usefulness in capital budgeting decisions.

Answer 14

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Answer 15

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Answer 16

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Answer 17

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 payback period of franchise L and franchise S, and determines whether they are independent or mutually exclusive.

Concept explainers

To determine: The rationale for the payback period technique and the franchise or franchises must be accepted if the company’s supreme acceptable payback is 2 years and is both franchises are independent or mutually exclusive.

To determine: The variance among the regular and discounted payback periods.

To determine: The main demerit of discounted payback and the payback method of real usefulness in capital budgeting decisions.

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Chapter 12 Solutions