Jonathan Lark's lifelong dream is to own a restaurant. He owns a premium site for a restaurant across the street from the localuniversity. Now he needs to decide what kind of restaurant to open.Recently, Jonathan began to investigate one of the fastest growing fast-food franchises in the country, Pepper Roni Pizza. A PepperRoni Pizza franchise costs $81.600, an amount that is amortized over 15 years. As a franchisce, Jonathan would need to adhere tothe company's building specifications. The building would cost an estimated $1.224,000 and would have a $136,000 salvage valueat the end of its 15-year life. The restaurant equipment (fryers, steam tables, booths, counters) is sold as a package by the corporateoffice at a cost of $200.000, will have a salvage value of $27.200 at the end of its five-year life, and must be replaced every fiveyearsJonathan estimates the annual revenue from a Pepper Roni Pizza tranchise at $2,584.000. Food costs typically run 36% of revenue.Annual operating expenses, not including depreciation, total $1.156.000. For financial reporting purposes, Jonathan will usestraight line depreciation and amortization. Based on past experience, he uses an 16% discount rate.Click here to view the factor table.(a)Your AnswerCorrect Answer (Used)Calculate the restaurant's net present value over the franchise's 15 year life. (For calculation purposes, use 4 decimal places asdisplayed in the factor table provided and round final answer to 0 decimal place, eg. 58,971)Net present value1,165,826(b)Use Excel ora similar spreadsheet application to calculate the restaurant's internal rate of return over the franchise's 15 yearlife. (Round answer to 2 decimal places, eg. 15.25%)Internal rate of returneTextbook and MediaSave for LaterAttermpts: O of 3 usedSubmit Answer

NPV is the net current worth of cash flows that are expected to occur in the future. It is computed…

Jonathan Lark's lifelong dream is to own a restaurant. He owns a premium site for a restaurant across the street from the local university. Now he needs to decide what kind of restaurant to open. Recently, Jonathan began to investigate one of the fastest-growing fast-food franchises in the country, Pepper Roni Pizza. A Pepper Roni Pizza franchise costs $81.600, an amount that is amortized over 15 years. As a franchisee, Jonathan would need to adhere to the company's building specifications. The building would cost an estimated $1.224,000 and would have a $136,000 salvage value at the end of its 15-year life. The restaurant equipment (fryers, steam tables, booths, counters) is sold as a package by the corporate office at a cost of $200,000, will have a salvage value of $27.200 at the end of its five-year life, and must be replaced every five years Jonathan estimates the annual revenue from a Pepper Roni Pizza franchise at $2,584.000. Food costs typically run 36% of revenue. Annual operating expenses, not including depreciation, total $1.156.000. For financial reporting purposes, Jonathan will use straight-line depreciation and amortization. Based on past experience, he uses an 16% discount rate. Click here to view the factor table. (a) Your Answer Correct Answer (Used) Calculate the restaurant's net present value over the franchise's 15-year life. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, eg. 58,971.) Net present value 1,165,826 (b) Use Excel or a similar spreadsheet application to calculate the restaurant's internal rate of return over the franchise's 15 year life. (Round answer to 2 decimal places, eg. 15.25%) Internal rate of return eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Arswer

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 13P