ACCTG $330$

Guthrie$$s Golden Fried Chicken Fingers Franchise$*$

Guthrie$$s restaurant was started in $1965$ in Haleyville, Alabama, by Hal Guthrie. The restaurant began

serving Chicken Fingers in $1978.$ In $1982,$ Hal and his oldest son Chris opened a Guthrie$$s in Auburn,

Alabama. Originally, Guthrie$$s had a large menu including hamburgers, steak sandwiches, and chicken

fingers. Soon after opening, however, the menu was limited to the overwhelmingly popular Chicken

Finger box. The Box includes chicken fingers, French fires, cole slaw, Texas toast, and Guthrie$$s

Signature Sauce. During the $1980$s$,$ The Guthrie family opened Guthrie$$s locations in several college

towns throughout the Southeast, including Athens, Georgia, Tallahassee, Florida, and Tuscaloosa,

Alabama. Hey also opened them in several towns. By the end of the $1980$s$,$ Guthrie$$s was a household

name throughout much of the Southeast.

Now, more than $50$ years since first opening, Guthrie$$s continues as a specialty restaurant with a limited

menu focusing on Fried Chicken Fingers. It is still a family business, but its franchise business is

steadily growing. As a result, people all over the U$.$S$.$ can now enjoy Guthrie$$s Golden Fried Chicken

Fingers.

You and your business partners are considering applying for a franchise. If approved, you expect startup

costs to be $$650,000$ in equipment that is depreciable. You will use a $5-$year MARCUS method to

depreciate the $$650,000$ equipment. Your plan is to start and operate the business for $6$ years at which

time you expect to sell the business for $$1,000,000.$ You expect to initially have working capital needs

of $$25,000,$ but these have additional needs by $$6,000$ per year in the $6$ years. You expect sales in the

first year to be $$350,000$ and that sales will grow by $12\%$ per year. You project annual fixed operating

expenses of $$50,000$ in the first year. These fixed expenses will grow by $$5,000$ per year. Your annual

variable operating expenses are expected to be $50\%$ of sales.

You expect to pay taxes of $21\%.$ Assume your required return is $12\%.$ Should you apply for a Guthrie$$s

Franchise? Prepare a report responding to the following prompts:

$1.$ Prepare pro forma income statements and operating cash flow projections. Explain your pro

forma statements in your report.

$2.$ Estimate the total cash flows for this opportunity. Explain your estimates in your report.

$3.$ Estimate the opportunity$$s NPV$.$ Explain how you arrived at your NPV estimates in the report.

$4.$ Consider what happens to cash flows and NPV if Sales are $20\%$ more than expected. What if

sales are $20\%$ less than expected? Discuss this analysis in your report.

$5.$ What is your recommendation? Should you and your partners pursue this opportunity? Explain

your recommendation and provide your rationale.

SOLVE IN EXCEL, SHOW A PAGE WITH THE SOLUTIONS AND ANOTHER WITH THE FORMULAS