The owner of a small printing company is considering the purchase of additional printing equipment to expand her business. If the owner expands the business and sales are high, projected profits (minus the cost of the equipment) should be $90,000; if sales are low, projected profits should be $40,000. If the equipment is not purchased, projected profits should be $70,000 if sales are high and $50,000 if sales are low. Consider Decision Tree Analysis   If the owner is optimistic about the company's future sales, should the company expand by purchasing the equipment? Is the owner's optimism or pessimism about sales the only factor that may impact the company's profits?

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2. You are thinking about starting a restaurant franchise in Irvine, California. You are considering two choices – either a P.F. Chang’s or a Dairy Queen. Unfortunately, you only have an opportunity to build one or the other. The details are the following:    P.F. Chang’s: The franchise fee and cost of the building are $1,000,000. After careful calculation, you believe the restaurant will generate $150,000 a year in positive cash flow for the next 20 years at which point the franchise rights expire and the building is worthless (ie. There’s no extra money at the end). Discount rate is 10%.    Dairy Queen: The franchise fee and cost of the building are $500,000. After careful calculation, you believe the restaurant will generate $80,000 a year in positive cash flow for the next 20 years at which point the franchise rights expire and the building is worthless (ie. There’s no extra money at the end). Discount rate is 10%.   a) What are the two projects’ IRRs and which franchise would you…

A businessman wants to set up a factory in an area. Now, The entrepreneur is looking for the best regional alternative that he thinks will profitable for his business, based on the survey results, area A has a probability of 0.8 to get a profit of IDR 5,000,000, if the company fails then will experience a loss of IDR 650,000. The second area is area B with 0.7 probability to get a profit of Rp. 5,500,000, if the company fail, you will get a loss of IDR 700,000. Based on this data, which locations are most advantageous?

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If your friend asks you to invest into his two year old restaurant as a partner, which is expanding and needs money to open a second restaurant in another location, will you agree? What factors will you consider in making the decision? Will your answer be different if he asks you to personally loan him the money that he will in turn invest into the business? Why or why not?

Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,530 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,070 and $850, respectively.Alternatively, Mr. Fitch could purchase for $9,960 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,440 and $2,350, respectively.Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.Required Determine the payback period and unadjusted rate of return (use average investment) for each…

Mr. Martínez is the owner of a company dedicated to the production of renewable energy. Nowadays, his business has good cash flows due to the increase in demand in this area. However, to be more competitive he needs cost efficiency with his suppliers. The average financing need ranges between $600,000 and $1,200,000 pesos per year. The following is requested: 1. Introduction, that is, what is expected with the resolution of this exercise. 2. Define first what is the need to solve. 3. Investigate the options offered by financial institutions.

As the owner of a small startup, you are faced with a fewmajor financial decisions concerning the expansion orpotential sale of your business. Based on the followingdetails, you must calculate the Present Value, Future Value,Loan Amortization and NPV/Firm Value.Present Value:You are required to have $250,000 seven years from nowfor new manufacturing equipment. Not sure how much youwill need to save as a lump-sum today, you calculate thepresent value (for the beginning of the period) with thefollowing additional details. Interest Rate of 6% with nofuture deposits.Future Value:To take advantage of the rising interest rate environmentthrough the actions of the Federal Reserve, you decide toinvest in U.S. Treasury Bills maturing in one year. Curious toknow what your investment will be worth one year fromtoday, you calculate the future value (for the end of theperiod) based on the following details. Number of period isone, interest rate is 5.25% (compounded monthly), no futuredeposits,…

A careful buyer is deciding whether to buy artificial Christmas trees or continue cutting down trees. The artificial tree costs him $34 and he can use it for 8 years after which it is thrown away as garbage. The other alternative is to continue cutting trees at a cost of $8 today, $9 next year, $10 the next year and so on during those same 8 years. If he buys the artificial tree, what is the return on investment?