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Assignment on Financial Viability of Wonder Kidz Franchise
Financial Management (ACCT 702) Shirley Lamarre
August 06, 2023
1
Title: Financial Viability of Wonder Kidz Franchise: A Path to Success
Introduction:
Mr. Bansal's aspiration of establishing a Wonder Kidz franchise has presented a promising entrepreneurial opportunity. As a team of financial consultants, we have meticulously evaluated the project's financial feasibility using capital budgeting techniques. Our analysis, including Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, Discounted Payback Period, and Profitability
Index (PI), aims to determine the project's viability and provide a recommendation for Mr. Bansal. Our evaluation is based on the cash flow projections provided in the case study and a discount rate of 12%, which represents the opportunity cost of capital.
Evaluation of Financial Viability:
1. Net Present Value (NPV):
The net present value (NPV) of the franchise venture is calculated to be 39,031.42
INR, which means it has a positive value. If the NPV is positive, it means that the project will bring in more money in the future than what Mr. Bansal initially invested. This is good news because it means the project will create value for him.
This indicates that the Wonder Kidz franchise has the potential to be profitable and successful. 2. Internal Rate of Return (IRR):
The project's internal rate of return (IRR) is 13.95%, which is higher than the cost of capital (12%). If the IRR (Internal Rate of Return) is higher than the required rate of return, it means that the franchise venture is expected to make a greater profit than the cost of the investment. This makes it a good opportunity to invest in. 3. Payback Period:
2
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Related Questions
Assignment Exercise A1)
Salalah company management is considering two competing investment Projects A and B.
Project A
1000
Year
Project B
Initial Investment
1000
1
275
300
275
300
275
300
4
275
300
5
275
300
DISCOUNT RATE 3.15%
Q1) Use the information below and help the management in choosing the monst desirable Project using all
the following techni
4) Profitability Index Technique.
Q2) Based on your solution or answer to question 1, comment as to which proposal is better and why?
بناءً على حلك أو إجابتك على السؤال 1 ، قم بالتعليق على أي اقتراح أفضل ولماذا؟
arrow_forward
Simple Investment Allocation Case:
This year, 2022 ABM Company selected your team to manage
their allotted budget amounting to 10 million pesos for
investment diversification portfolio. Your team was assigned to
handle the said account.
What would you choose?
Other investment assets or Alternatives to fixed income and
equities
arrow_forward
Simple Investment Allocation
Case:
This year, 2022 ABM Company selected your team to manage
their allotted budget amounting to 10 million pesos for
investment diversification portfolio. Your team was assigned to
handle the said account.
Question:
How would you allocate funds?
arrow_forward
Problem #2 - Chapter 13 – Preference Ranking for Investment Projects
The management of Revco Products is exploring four different investment opportunities, Information on the four projects under study
follows:
Project C
(450,000)
522,970
72,970
Project B
(360,000)
433,400
73,400
Project A
Description
Investment Required ($)
Present value of Cash Inflows ($)
Net Present Value ($)
Life of the Project (in years)
Project D
(270,000)
336,140
66,140
(480,000)
567,270
87,270
6
3
12
6
Internal Rate of Return (%)
18%
19%
14%
16%
Because the company's required rate of return is 10%, a 10% discount rate has been used in the present value computations above.
Limited funds are available for the investment, so the company cannot accept all the available projects.
1) Compute the project profitability index for each investment project.
2) Rank the four projects according to preference in terms of the following metrics:
Net Present Value
b. Project Profitability Index
Internal Rate of Return
a.
c.
3)…
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Andrew Oxnard, chief financial officer, has been asked by Harry Pendel, chief executive officer and co-founder of Pendel & Braithwaite, Ltd. (P&B), to analyze two capital investment projects (projects A and B), which are expected to generate the following profit (p)streams:
Profit Streams for Projects A and B
period
?? ($)
?? ($)
1
100,000
350,000
2
200,000
300,000
3
250,000
200,000
4
300,000
100,000
5
325,000
100,000
Total
1,175,000
1,050,000
Profits are realized at the end of each period. Assuming that P&B is a profit maximizer if the discount rate for both projects is 12%, which of the two projects should be adopted?
arrow_forward
Two alternative start-up FinTech projects were being contemplated for financing by a venture capitalist to determine which one is more viable, based on cost and returns. Table 4.1 below shows a five-year schedule for the two projects:
Table 4.1
Project
Start of Project
End of 1st Year
End of 2nd Year
End of 3rd Year
End of 4th Year
End of 5th Year
BlockChain GoPay
($230,000)
($32,000)
$660,000
$96,000
$106,000
$119,000
DLT CloudPay
($276,000)
$20,000
$65,000
$96,000
$102,000
$118,000
If you were the Project Manager on the Venture Capitalist team, using the Net Present Value (NPV) method, which project would you recommend be financed based strictly on the schedule shown above and an interest rate of 7.5%?
Use a Microsoft Excel, or any other method to deduce/calculate the Internal Rate of Return (IRR) for both projects. Explain how you would advise the Bank which project to finance using the result from the IRR method?
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Assignment Exercise A1)
Salalah company management is considering two competing investment Projects A and B.
Project A
1000
Project B
1000
Year
Initial Investment
1
275
300
275
300
275
300
4
275
300
300
5
275
DISCOUNT RATE 3.15%
Q1) Use the information below and help the management in choosing the most desirable Project using all
the following technique:
استخدم المعلومات الواردة أدناه وساعد الإدارة في اختيار المشروع الأكثر رواجا باستخدام جميع الأساليب التالية
1) Payback Period Technique.
2) Discounted Payback Period Technique.
3) Net Present Value Technique
4) Profitability Index Technique.
Q2) Based on your solution or answer to question 1, comment as to which proposal is better and why?
بناءً على حلك أو إجابتك على السؤال 1 ، قم بالتعليق على أي اقتراح أفضل ولماذا؟
arrow_forward
compute for ROI, NPV and Profitability
Index
I. Create a structural organization of your team. Choose any of the exampled structu
assign a designation to cach member. State the qualifications of each of every team member.
II. Select the most profitable project, using required rate of return of 15%
- Project A
Initial Investment = 50,000
Cash fiow for the next 3 years = 25,000
Project B
Initial Investment = 100,000
Cash flow for the next 4 years = 31,250
- Project C
Initial Investment = 150,000
Cash flow for the next 5 years = 35,000
arrow_forward
Part D: Investment Decisions
Now consider that Luxio has identified the following two mutually exclusive projects:
Year
0
1
2
3
4
Cash Flow (A)
-$34,000
$16,500
$14,000
$10,000
$6,000
Cash Flow (B)
-$34,000
$5,000
$10,000
$18,000
$19,000.
1. What is the IRR for each of these projects? Based on IRR decision rule, which
project should the company accept?
2. If the required return is 11%, what is the NPV for each of these projects?
Based on the NPV decision rule, which project should the company accept?
3. Over what range of discount rates would the company choose project A? At
what discount rate would the company be indifferent between these two
projects? Explain.
arrow_forward
Homework, Chapter 26
Average Rate of Return
The following data are accumulated by Watershed Inc. in evaluating two competing capital
investment proposals:
Project A
Project z
Amount of investment
$80,000
$92,000
Useful life
4 years
7 years
Estimated residual value
Estimated total income over the useful life
$8,800
$27,370
Determine the expected average rate of return for each project. Round your answers to one
decimal place.
Project A
Project z
arrow_forward
2. How should a company prioritize all of its capital project opportunities? In responding invoke the various methodologies learned
this week and how to use them for ranking projects. At least 400 words
arrow_forward
Company is looking for opportunities to grow. Management is currently considering
project proposals that will help expand the business. Several ventures were pre-
screened and the team in-charge of evaluating proposals focused on two projects.
The following data are given for two mutually exclusive project proposals:
Project A
Project B
Initial Investment
Annual Net Cash Inflows:
Year 1
Year 2
Year 3
Year 4
Year 5
50,000.00
d) Internal Rate of Return
e) Discounted Payback Period
f) Profitability Index
15,000.00
14,000.00
12,000.00
12,000.00
12,000.00
60,000.00
30,000.00
14,000.00
10,000.00
10,000.00
10,000.00
Assuming that the firm's required rate of return is 20%, compute the following:
a) Accounting Rate of Return
b) Accounting Payback
c) Net Present Value
arrow_forward
Question 6 options:
Investigation and a reasonable amount of work had brought the following project to the attention of Arthur Morgan, CEO of Valentine Ventures.
The following information is presented to you:
CCA rate Building: 4%
CCA rate Equipment: 30%
Cost of Capital 12%
Corporate Tax Rate 40%
An immediate cash outlay of $800,000 will be required to purchase vacant land. The vacant land will be required to house the specialized building that will be constructed over the next 2 years.
The building will require an immediate down payment of $700,000 now and $1,600,000 upon completion of the building at the end of the second year.
New equipment also will be placed in the building at the end of the 2nd year. The equipment will require annual year end purchase payments of $400,000 in year one and two.
The equipment…
arrow_forward
The company is in search of resources for a new investment of TL 3,000,000. As a financial manager,
a) What kind of financing strategy would you suggest for the investment project in question?
arrow_forward
You are the investment manager of an appliance company. The industry is currently in the expansion
face and the CEO would like to capture as much of the market share as possible. You asked your
analysts to submit project proposals as summarized below.
Project
Discount Rate
Investment
Annual Cash Flow Project Life (Years)
10
3M
1M
5
12
4M
1M
8
8
5M
2M
4
8
3M
1.5M
3
12
3M
1M
6
Which projects should the manager choose? If you were given unlimited capital, which projects should
be implemented?
ABCDE
arrow_forward
Managerial Accounting (Please help ASAP. Solutions only. Rate will be given)
ABC Corporation is considering the following three investment projects:
Project P
Project Q
Project R
Investment required
15,000
50,000
71,000
Present Value of Cash Inflows
15,150
54,500
75,970
The only cash outflows are the initial investements in the projects.
a. Determine the Project Profitability Index of Project P?
b. Determine the Project Profitability Index of Project Q?
c. Determine the Project Profitability Index of Project R?
arrow_forward
Asgnment Exercise A1)
Salalah company management is considering two competing investment Projects A and B.
Project A
1000
Project B
1000
Year
Initial Investment
1
275
300
275
300
3
275
300
4
275
300
275
300
DISCOUNT RATE 3.15%
Q1) Use the information below and help the management in choosing the most desirable Project using all
the following technique:
Payback Period Technique.
1) Discounted Payback Period Technique.
2) Net Present Value Technique
3) Profitability Index Technique.
Q2) Based on your solution or answer to question 1, comment as to which proposal is better and why?
arrow_forward
Based on the information below which projects will we choose based on weighted average profitabiltity Index if we only have OMR500,000 to invest?
Project
NPV
Investment
PI
A
130,000
200,000
B
241,250
225,000
C
294,250
275,000
D
262,000
250,000
Select one:
a. WAPI AD
b. WAPI AB
c. WAPI BD
d. WAPI BC
arrow_forward
B
Shaylee Corporation has $2.00 million to invest in new projects. The company's managers have presented a number of possible
options that the board must prioritize. Information about the projects follows:
Initial investment.
Present value of future cash flows
Project A
$ 420,000
770,000
Required:
1. Is Shaylee able to invest in all of these projects simultaneously?
2-a. Calculate the profitability index for each project.
2-b. What is Shaylee's order of preference based on the profitability index?
Complete this question by entering your answers in the tabs below.
Project B
$ 235,000
420,000
Req 1
Req 2A and 28
Is Shaylee able to invest in all of these projects simultaneously?
Is Shaylee able to invest in all of these projects simultaneously?
Reg 1
Req 2A and 2B >
Project C
$725,000
1,205,000
Project Di
$950,000
1,565,000
arrow_forward
A*) You are hired as financial manager in Abis Investment Co., you made cash flow projection for two different projects. You are asked to estimate the feasibility of the projects by using the following investment criteria: NPV, IRR, MIRR and BCR. They are mutually exclusive. Show all your calculation. The details of that projects are given below:
Year
0
1
2
3
4
5
Project A
-1,000
1,200
4600
1,800
-8,000
5,000
Project B
-2,000
1,000
3600
800
8,000
500
Discount rates
12%
13%
12%
14%
15%
11%
arrow_forward
Question 3:
Juhayna Food Industries is attempting to select the best of three mutually exclusive projects.
The initial investment and after-tax cash inflows associated with these projects are shown in the following table.
Cash flow
Project A
Project B
Project C
Initial Investment
100000
120,000
130,000
Year 1 Cash Inflows
30000
36,500
38000
Year 2 cash inflows
35000
45000
20000
Year 3 cash inflows
40000
40000
42000
Year 4 cash inflows
38000
35000
45000
Year 5 cash inflows
20000
30000
50000
Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%.
TO dO
Create a spreadsheet to answer the following questions:
Calculate the firm‘s cost of capital ( WACC)
Calculate the payback period for each project.
Calculate the net present value (NPV) of each…
arrow_forward
Question 3:
Juhayna Food Industries is attempting to select the best of three mutually exclusive projects.
The initial investment and after-tax cash inflows associated with these projects are shown in the following table.
Cash flow
Project A
Project B
Project C
Initial Investment
100000
120,000
130,000
Year 1 Cash Inflows
30000
36,500
38000
Year 2 cash inflows
35000
45000
20000
Year 3 cash inflows
40000
40000
42000
Year 4 cash inflows
38000
35000
45000
Year 5 cash inflows
20000
30000
50000
Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%.
Calculate the internal rate of return (IRR) for each project.
Discuss any conflict in ranking that may exist between NPV and IRR.
Summarize the preferences dictated by each measure, and indicate which…
arrow_forward
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- Part D: Investment Decisions Now consider that Luxio has identified the following two mutually exclusive projects: Year 0 1 2 3 4 Cash Flow (A) -$34,000 $16,500 $14,000 $10,000 $6,000 Cash Flow (B) -$34,000 $5,000 $10,000 $18,000 $19,000. 1. What is the IRR for each of these projects? Based on IRR decision rule, which project should the company accept? 2. If the required return is 11%, what is the NPV for each of these projects? Based on the NPV decision rule, which project should the company accept? 3. Over what range of discount rates would the company choose project A? At what discount rate would the company be indifferent between these two projects? Explain.arrow_forwardHomework, Chapter 26 Average Rate of Return The following data are accumulated by Watershed Inc. in evaluating two competing capital investment proposals: Project A Project z Amount of investment $80,000 $92,000 Useful life 4 years 7 years Estimated residual value Estimated total income over the useful life $8,800 $27,370 Determine the expected average rate of return for each project. Round your answers to one decimal place. Project A Project zarrow_forward2. How should a company prioritize all of its capital project opportunities? In responding invoke the various methodologies learned this week and how to use them for ranking projects. At least 400 wordsarrow_forward
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