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During 2005, a franchise-owned restaurant averaged: $300,000 in sales; $50,000 in net cash flows; and $30,000 in operating income.

1.  During 2005, a franchise-owned restaurant averaged:
    $300,000 in sales;
    $50,000 in net cash flows; and
    $30,000 in operating income.
  
a.  The expected cash investment per franchise-owned restaurant opening in the year 2005 was $250,000. Assume the value of the investment decreases to zero over a ten-year period of time.
        a. 0.10  
b. 0.12  
c. 0.24  
d. 0.20  
  
b. The accounting rate of return for one franchise-owned restaurant is:
Assuming a 10 % required rate of return, the net present value for one franchise-owned restaurant is:
a. $57,230  
        b. $11,565  
c. ($65,662)  
d. $19,275  
c. The profitability index for one franchise-owned restaurant is:
a. 1.667  
b. 0.813  
c. 1.229  
d. 0.737  
d. The internal rate of return for one franchise-owned restaurant is:
a. greater than 20%  
b. 10%  
c. approximately 15%  
d. The IRR cannot be determined.  
e. Does this franchise-owned restaurant appear to be a good investment?
a. Yes, because the accounting rate of return is greater than 10%.  
b. No, because the payback period is too long.  
c. Yes, because the investment delivers more than the 10% required rate of
                 return.  
d. No, because the expected net annual cash inflows are inadequate.  
2.     The following information pertains to Tiffany Company:
Month Sales Purchases
January $30,000 $16,000
February $40,000 $20,000
March $50,000 $28,000
Cash is collected from customers in the following manner:
Month of sale 30%
Month following the sale 70%
    40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.
    Labor costs are 20% of sales. Other operating costs are $15,000 per month (including $4,000 of depreciation). Both of these are paid in the month incurred.
    The cash balance on March 1 is $4,000. A minimum cash balance of $3,000 is required at the end of the month. Money can be borrowed in multiples of $1,000.
a. How much cash will be paid to suppliers in March?
a. $23,200  
b. $44,000  
c. $28,000  
d. None of the above is correct
b. How much cash will be disbursed for labor and operating costs in March?
a. $48,200  
b. $44,200  
c. $21,000  
d. $25,000  
c.  What is the ending cash balance for March?
a. $3,000  
b. ($25,000)  
c. $3,800  
d. $3,200  

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