A savvy business owner who owns several chicken franchises is seeking to add another store to his
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Question:
A savvy business owner who owns several chicken franchises is seeking to add another store to his portfolio of stores. He wants to buy a store in the Memphis market at a cost of $8.00 million. However, the owner will sell the store to him, BUT he also has to buy a second store in the Oxford market at a cost of $6.00 million as part of the deal. The Memphis store is doing well, but the Oxford store has cash flow issues. The business owner will have to buy BOTH stores or NONE at all. The owner has a discount rate of 9.00%. The owner will value the opportunities over a five-year period.
| STORE | 0 | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|---|
| MEMPHIS | -$8.00 | $1.96 | $2.14 | $2.24 | $2.64 | $6.00 |
| OXFORD | -$6.00 | $0.74 | $0.48 | $0.87 | $0.84 | $4.00 |
What is the rate of return on buying both stores? (HINT: Find IRR of combined projects.)
Expert Answer:
Answer To find the rate of return on buying both stores we need to calculate the Internal Rate of Re... View the full answer
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