Marginal Cost and Optimal Stocking Quantity

1. Franchisees gain numerous advantage when they purchase a franchise. First, while a franchisee may be opening a new store, it is part of an already established business and system. This means a franchisee has access to turnkey operations, allowing an increased speed to establishing and growing the business. Franchisees also get support for management and training activities, as well as financial assistance. Going hand in hand with this, a franchise already has an established brand name, quality of goods and service which have been standardized across the franchisor’s larger company, and national advertising programs from franchisors. Franchises also have large-volume, centralized buying power. A franchise has proven products, and

Schlosser tells us about how many companies expand their businesses by selling franchises. Selling franchises has been successful for many companies such as McDonald’s, Subway, and many others were able to expand using this route. In fact, some fast food companies open up some many franchises, that whenever the same restaurant is opened close to another one, that managers complain of losing business. Another thing the books informs us on is that when a franchise doesn’t work out then the fast food company has no choice than to close that area. Subway does this very often and is called “The worst franchise in America”. Next, the book talks about economics. There is a lot of risk taking when it comes to being a franchisee for a fast food restaurant. People who would like to become future franchisees can spend almost 1.5 million dollars just to become one. Before purchasing a franchise, people have to consider whether or not it will be worth the money, because if it doesn’t work out there is no way that

In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.

a. Using the function provided, the optimal stocking quantity, which maximizes expected profit, is approximately 584 newspapers. If 584 newspapers were to be ordered, Hamptonshire Express will net an expected profit of $331.436 per day.

1b) What advantages are there to not franchise the restaurants? Do you think they ought to franchise restaurants down the road? What advantage would that be for the company?

Moreover, in order to be considered a (potential) franchise owner Wishewan requires a net worth of $350,000, liquid assets of $100,000 and a franchise agreement of 10 years. (Pg. 2) This tactic gives Wishewan an advantage because the franchise

f) Recall that the owner treated the layout redesign the same as other annual costs. Would the decision change if he considered only 50% of these redesign costs this year? He should change to doing a drive-thru service because his expected value would increase to $120,000.

b- The ideal combination to maximize the channel profit, according to the spreadsheet designed by Sheen, would be a transfer price of $.99 with a buyback price of $.988. This is just a little bit more profit than we optimized in the vertically integrated channel of question 2, although not really by a significant amount. c- If Sheen were to be paid a franchising fee by Armentrout each day, it

[Appendix B shows Pro Forma for Option 1 and Appendix C shows a Pro Forma for Option 2] A1 can also take a reactive approach by increase its advertising while Lawry is running its two-for-$5 promotion. A1 Steak Sauce can pay for more efficient shelf spacing in the retail outlet. This will include end caps, more facings in the stores, larger and increase signage (bigger and better than what they have done in years past). A1 can also use their brand recognition to their advantage by ensuring more restaurants that publically use A1 display their products, rather it’s on the menu or tables. Currently A1 spends roughly 15% of total revenue on advertising. Option 3: A1 could simply increase their percentage of revenue to marketing and adverting from 15% to 20%. This approach will decrease A1’s net profit by roughly 7.5million (with the worst case scenario that A1 will not increase sales at all) but it will allow A1 to increase its brand awareness and make it substantially harder for Lawry to penetrate the market with its new steak sauce. [Appendix D displays A1’s pro forma with the original 15% of revenue funding its marketing while Appendix E displays an increase to 20% of revenue funding marketing initiatives]Recommendation: Based on the financial analysis of each option, Option 2 would be the best approach for A1. Although each scenario is profitable, Option 2 has more

* High quality of whisky due to the unusual iron-free spring water used in the distillation process and the specially prepared fire-charred white oak barrels used in the aging process.

If the franchises are independent they should both be accepted. If they are mutually exclusive Franchise S should be accepted. This because when they are above the required WACC of 10% the NPV is greater than 0, however, when the IRR is greater than the WACC of 10% then NPV of Franchise S is greater the Franchise of L. No, if the cost of capital is 17% or greater then franchise S only should be accepted whether independent or mutually exclusive.

It is assumed that they will be offering both French and English classes during weekday and weekend with OILT. But without a clear understanding of the new targeted market, it is difficult to estimate a sales number. In this calculation, instead of looking at the profit based on an assumed number of sales, the profitability of the OILT programs is evaluated using the same level of sales as proposed in Scenario 3 with RELE. The comparison of the profitability can reveal the different franchise fee structure and its impact on profitability.

Franchisors are increasingly having to be more and more selective in the adoption of franchisees with factors such as economic climate and the potential difficulty with growth playing key factors in the decision making process. It is not simply an ability to grow which creates a successful Franchise and nor is it the desire of any franchisor to adopt every potential franchisee. Franchisors are becoming more and more scrutinising as the global economy declines. There is a general understanding within any franchised

This type of relationship can be explained by the law of demand which states that as price of a good increase or decreases, the quality demanded of that good falls or rises all other things being equal.

3. Highly refines supply chain that can cater to high demand of orders: The efficient coordination of the suppliers of