Service. For $50,000, they give you training and exclusive territorial rights. Equipment can be purchased through the home office for an additional $50,000, all of which will be straight-line depreciated. The home office estimates your territory can generate $100,000 in sales volume in the first year and that sales will grow 10% in each of the following 4 years, at which time you plan on selling the business for $50,000, after tax. From reading their brochures and talking to several other franchisees, you believe that costs, excluding depreciation, are about 60% of sales. You also know that the home office requires you to pay a 15% royalty on your gross sales revenue. Using a 30% tax rate and a 10% return requirement, how will this opportunity affect your personal wealth?
Answer to relevant QuestionsThe ice cream shop described in the text has been a smash success. Customers from the next college town are pleading with you to open one closer to them. Based on your operating experience and knowledge of local real estate, ...Briefly describe the trends that have occurred in the corporate use of debt. The management of Albar Incorporate has decided to increase the firm’s use of debt form 30 percent to 45 percent of assets. How will this affect its internal growth rate in the future? Its sustainable growth rate? What implications might the pecking order and market-timing hypotheses have for an optimal capital structure? Is the weighted average cost of capital still an important concept under these hypotheses? The Basic Biotech Corporation wants to determine its weighted average cost of capital. Its target capital structure weights are 50 percent long-term debt and 50 percent common equity. The before-tax cost of debt is estimated ...
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