Veggie Burger Boy sells franchises to individuals who want to start small in the sandwiches-for-vegeterians business and

Question:

Veggie Burger Boy sells franchises to individuals who want to start small in the sandwiches-for-vegeterians business and grow in net cash flow over the years. A franchisee in Mississippi provided the $5000 up-front money, but did very poorly the first year. He was allowed to borrow at the end of his first year from the corporation's capital incentive fund with a promise to repay the loan in addition to the annual share that the corporation contractually receives from annual sales. The net cash flows from the corporation's perspective are shown below.

The corporate chief financial officer (CFO) has some questions concerning this NCF series. Help her by doing the following, using a spreadsheet.

(a) Plot the PW versus i graph and estimate the rate of return for this franchise.

(b) Use the IRR function on a spreadsheet to find the corresponding return.

(c) Basing your conclusions on Descartes' and Norstrom's rules, provide the CFO with some advice on what ROR value is the most reliable for this franchise over the 6-year period. The normal corporate MARR used for franchisee evaluation is 30% per year.

MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...