Posted: November 14th, 2015

Quantitative & Critical thinking Assignment

Quantitative & Critical thinking Assignment

Instructions:
 This assignment is worth 10% of your final grade for the class.

 Provide answers to all questions in a Word document.

 Make sure you answer each question fully and in great detail.

Rationale for assignment and Grading Scale:
Please note that this assignment has been created to assess you quantitative,

critical thinking and writing
skill. Questions 1 – 6 will assess your ability to solve quantitative problems

while the three last questions
will help determine your ability to think critically as well as your writing

skills. As such, when answering the
last three questions be aware that you will be graded based on you your ability to

think the answers through
(10 points for each question) as well as your ability to express your thoughts

using correct grammar (5
points for each question).
Problem:
You have just completed your undergraduate degree, and one of your favorite courses

was “Today’s
Entrepreneurs.” In fact, you enjoyed it so much you have decided you want to “be

your own boss.” While
you were in the program, your grandfather died and left you $250,000 to do with as

you please. You are
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 franchise in the fast foods area,

maybe two (if profitable).
The problem is that you have never been one to stay with any project for too long,

so you figure that your
time frame is four years. After four years you will sell off your investment and go

on to something else. You
have narrowed your selection down to two choices; (1) Franchise 1: Fabulous Fried

Chicken and (2)
Franchise 2: Soups, Salads, & Stuff. The net cash flows shown below include the

price you would receive
for selling the franchise in Year 4 and the forecast of how each franchise will do

over the four-year period.
Franchise 1’s cash flows will start off high but will trail off as other chicken

competitors enter the marketplace
and as people become more health conscious and avoid fried foods, while Franchise

2’s cash flows will
start off slowly but will increase rather quickly as people become more health

conscious. Franchise 2
serves breakfast and lunch, while Franchise 1 serves only dinner, so it is possible

for you to invest in both
2
franchises (i.e., projects may or may not be independent). You see these franchises

as perfect
complements to one another: you could attract both the lunch and dinner crowds and

the health conscious
and not so health conscious crowds without the franchises’ directly competing

against one another. Here
are the net cash flows (in thousands of dollars):
Expected
net cash flows
Year Franchise 1 Franchise 2
0 ($100) ($100)
1 90 10
2 70 50
3 50 60
4 20 80
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 each franchise, and concluded

that both franchises
have risk characteristics that require a return of 8 percent. You must now

determine whether one or both
of the projects should be accepted.
In order to do so please answer the following questions fully. Make sure to show a

time line, the formula
to be used, the steps taken to solve the problem (calculator or excel) and the

final numerical answer when
appropriate.
Quantitative questions.
1. (5 points) Create a time line for each of the franchises.
2. (10 points) What is each franchise’s NPV? Make sure to show the formula, steps

and final answer.
3. (10 points) Calculate the IRR for each project. Make sure to show the formula,

calculator or excel
steps and final answer.
4. (10 points) Find the MIRRs for Franchises 1 and 2. Make sure to show the

formula, steps and final
answer.
5. (10 points) Calculate the payback period for each franchise. Make sure to show

the formula, steps
and final answer.
6. (10 points) Calculate the discounted payback period for each franchise. Make

sure to show the
formula, steps and final answer.
Qualitative questions. Each question is worth 15 points.
1. (15 points) Based on the results obtained using five different models state

which franchise you
would ultimately choose if the projects are independent and if they are mutually

exclusive (i.e.,
you decide invest in both or just on one). Make sure to explain in some detail why.

Please use
definitions and do not forget to point out the advantages and disadvantages of each

model.
2. (15 points) In the case of mutually exclusive projects (i.e., you can only

select one of the two
projects) determine which project you would select and why.
3. (15 points) With regards to question 2, assume that you need to make your

decision using only
one model, which model would you choose to make your selection and why.

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