Reference no: EM132008247
Question: The MVG company is exploring the possibility of operating a hamburger restaurant on a franchise basis. The investment in this new store will have a value of € 45,500 and a duration of 5 years at the end of which the return of facilities without liquidation value is part of the contract with the franchisor. The company intends to amortize this investment linearly.
The company expects to sell 1,000 hamburgers for the first year at a price of € 6 each. From that year onwards the company expects that the growth will be 500 hamburgers every year and as part of its advertising promotion have established not increase in the 5 years the price of the hamburger.
The conditions established in the contract are to provide the franchisor with 10% of sales each year. Provisions for the manufacture of hamburgers will account for 48% of sales.
Other operating expenses of the company (salaries, supplies, etc.) according to budget will be as follows:
Fixed 1,200 euros per year
Variables 3% of sales
In addition, the first year the advertising expenses that pay for television rights for the four years amount to 6,000 €. The company's tax rate is 30%. The average stocks of raw materials will be the result of a rotation of 5 and on average in boxes will leave 600 € (for changes). He will not trust any client. The chief financial officer has negotiated a payment to 60-day suppliers and 30-day creditors (including the franchisor).
The structure of liabilities that the company intends to maintain during the years that the investment lasts will be 30% of its own resources and 70% of external resources remunerated at 7% of interest. Due to the short duration of the project, shareholders expect to distribute all profits to the dividends, which will mean, on average, 12% of the share capital.
Would the investment be carried out?
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Would the investment be carried out
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