$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.
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:
c. The profitability index for one franchise-owned restaurant is:
d. The internal rate of return for one franchise-owned restaurant is:
a. greater than 20%
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
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?
d. None of the above is correct
b. How much cash will be disbursed for labor and operating costs in March?
c. What is the ending cash balance for March?