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James Polk Hospital has currently unused space in its lobby. In three years, the space will… 1 answer below » James Polk Hospital has currently unused space in its lobby. In three years, the space will berequired for a planned expansion, but the hospital is considering uses of the space until then.
The hospital has decided that it wants to purchase at least one and maybe two fast food
franchises, to take advantage of the high volume of patients and visitors that walks through the
lobby all day long. The hospital plans to purchase the franchise(s), operate it for three years, and
then close down. The hospital has narrowed its selection down to two choices:
Franchise L: Lisa’s Soups, Salads, and Stuff View complete question » James Polk Hospital has currently unused space in its lobby. In three years, the space will berequired for a planned expansion, but the hospital is considering uses of the space until then.
The hospital has decided that it wants to purchase at least one and maybe two fast food
franchises, to take advantage of the high volume of patients and visitors that walks through the
lobby all day long. The hospital plans to purchase the franchise(s), operate it for three years, and
then close down. The hospital has narrowed its selection down to two choices:
Franchise L: Lisa’s Soups, Salads, and Stuff
Franchise S: Sam’s Wonderful Fried Chicken
The net cash flows shown below include the costs of closing down the franchises in year 3 and
the forecast of how each franchise will do over the three-year period. Franchise L serves
breakfast and lunch, while Franchise S serves only dinner, so it is possible for the hospital to
invest in both franchises. The hospital believes these franchises are perfect complements to one
another: the hospital could attract both the breakfast/lunch and dinner crowds and the health
conscious and not so health conscious crowds without the franchises directly competing against
one another. The corporate cost of capital is 10 percent.
Net cash flows
Year Franchise S Franchise L
0 -$100 -$100
1 $70 $10
2 $50 $60
3 $20 $80
20
a. Calculate each franchise’s payback period, net present value (NPV), internal rate of
return (IRR), and modified internal rate of return (MIRR).
b. Which project or projects should be accepted if they are independent? Which project
should be accepted if they are mutually exclusive? View less » Oct 11 2015 10:01 PM
