Instructions: ? This assignment is worth 10% of your final grade for the class. ? This work is to be done individually. Working with others is not allowed and doing so will constitute cheating. All answers must be your own. I will check for plagiarism and copying from others. If caught plagiarizing or copying you will receive a 0 in the assignment. Please refer to information above for more information. ? Provide answers to all questions in a Word document. Make sure to turn the assignment in electronic form in Canvas’ Assignment link. ? You can submit the quantitative part of the assignment in an excel document. ? No late work will be considered. The deadline can be found in the main body of the syllabus. ? Make sure all questions are answered fully. ? Please see matrixes (in Canvas) describing how this assignment will be graded when it comes to grammar and critical thinking. ? Make sure you answer each question fully and in great detail. Instructions on how to type equations/formulas in a word document: ? Open the Word document ? On the ribbon click on Insert ? In the Symbols box click on Equation. A light blue box will appear. ? You can choose what you wish to do under design. ? To include a fraction click on fraction first and then type what you wish in the appropriate boxes. ? To include a power first click on script and select the one for power. You may now aID the numbers or symbols. Rationale for assignment and Grading Scale: Please note that this assignment has been created to assess you quantitative, critical thinking and writing skill. Questions 1 – 6 will assess your ability to solve quantitative problems while the three last questions will help determine your ability to think critically as well as your writing skills. As such, when answering the last three questions be aware that you will be graded based on you your ability to think the answers through (10 points for each question) as well as your ability to express your thoughts using correct grammar (5 points for each question). Problem: You have just completed your undergraduate degree, and one of your favorite courses was “Today’s Entrepreneurs.” In fact, you enjoyed it so much you have decided you want to “be your own boss.” While you were in the program, your grandfather died and left you $250,000 to do with as you please. You are not an inventor, and you do not have a trade skill that you can market; however, you have decided that you would like to purchase at least one established franchise in the fast foods area, maybe two (if profitable). The problem is that you have never been one to stay with any project for too long, so you figure that your time frame is four years. After four years you will sell off your investment and go on to something else. You have narrowed your selection down to two choices; (1) Franchise 1: Fabulous Fried Chicken and (2) Franchise 2: Soups, Salads, & Stuff. The net cash flows shown below include the price you would receive for selling the franchise in Year 4 and the forecast of how each franchise will do over the four-year period. Franchise 1’s cash flows will start off high but will trail off as other chicken competitors enter the marketplace and as people become more health conscious and avoid fried foods, while Franchise 2’s cash flows will start off slowly but will increase rather quickly as people become more health conscious. Franchise 2 serves breakfast and lunch, while Franchise 1 serves only dinner, so it is possible for you to invest in both 2 franchises (i.e., projects may or may not be independent). You see these franchises as perfect complements to one another: you could attract both the lunch and dinner crowds and the health conscious and not so health conscious crowds without the franchises’ directly competing against one another. Here are the net cash flows (in thousands of dollars): Expected net cash flows Year Franchise 1 Franchise 2 0 ($100) ($100) 1 90 10 2 70 50 3 50 60 4 20 80 Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows. You also have made subjective risk assessments of each franchise, and concluded that both franchises have risk characteristics that require a return of 8 percent. You must now determine whether one or both of the projects should be accepted. In order to do so please answer the following questions fully. Make sure to show a time line, the formula to be used, the steps taken to solve the problem (calculator or excel) and the final numerical answer when appropriate. Quantitative questions. 1. (5 points) Create a time line for each of the franchises. 2. (10 points) What is each franchise’s NPV? Make sure to show the formula, steps and final answer. 3. (10 points) Calculate the IRR for each project. Make sure to show the formula, calculator or excel steps and final answer. 4. (10 points) Find the MIRRs for Franchises 1 and 2. Make sure to show the formula, steps and final answer. 5. (10 points) Calculate the payback period for each franchise. Make sure to show the formula, steps and final answer. 6. (10 points) Calculate the discounted payback period for each franchise. Make sure to show the formula, steps and final answer. Qualitative questions. Each question is worth 15 points. 1. (15 points) Based on the results obtained using five different models state which franchise you would ultimately choose if the projects are independent and if they are mutually exclusive (i.e., you decide invest in both or just on one). Make sure to explain in some detail why. Please use definitions and do not forget to point out the advantages and disadvantages of each model. 2. (15 points) In the case of mutually exclusive projects (i.e., you can only select one of the two projects) determine which project you would select and why. 3. (15 points) With regards to question 2, assume that you need to make your decision using only one model, which model would you choose to make your selection and why