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Group members:1. Bùi Thành TrungMBAIU160372. Hồng Đặng Ngọc NhânMBAIU160223. Thái Nguyệt MinhMBAIU160184. Trần Thế VinhMBAIU16038Chapter 10:The Basics of Capital Budgeting: EvaluatingCash Flows
You have just graduated from the MBA program of a large university, and one of yourfavorite courses was “Today’s Entrepreneurs.” In fact, you enjoyed it so much youhave decided you want to “be your own boss.” While you were in the master’sprogram, your grandfather died and left you $300,000 to do with as you please. Youare 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 franchisein the fast foods area, maybe two (if profitable).The problem is that you have neverbeen one to stay with any project for too long, so you figure that your time frame isthree years.After three years you will sell off your investment and go on tosomething else.You have narrowed your selection down to two choices; (1)Franchise L: Lisa’s Soups,Salads, & Stuff and (2)Franchise S: Sam’s Fabulous Fried Chicken. The net cash flowsshown below include the price you would receive for selling the franchise in year 3and the forecast of how each franchise will do over the three-year period. FranchiseL’s cash flows will start off slowly but will increase rather quickly as people becomemore health conscious, while Franchise S’s cash flows will start off high but will trailoff as other chicken competitors enter the marketplace and as people become morehealth conscious and avoid fried foods.Franchise L serves breakfast and lunch,while franchise S serves only dinner, so it is possible for you to invest in bothfranchises.You see these franchises as perfect complements to one another: youcould attract both the lunch and dinner crowds and the health conscious and not sohealth conscious crowds with the franchises directly competing against one another.
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 eachfranchise, and concluded that both franchises have riskcharacteristics that require a return of 10 percent.You mustnow determine whether one or both of the projects should beaccepted.