From the perspective of the franchisee, list three advantages and three disadvantages of buying a franchise
What will be an ideal response?
Answer: From the perspective of the franchisee, advantages of buying a franchise are:
1) freedom of being a business owner while having the support of a larger, established organization; 2) a viable business model that has worked many times before; 3) instant name recognition; 4) standardized quality of goods and services; 5) national advertising; 6) services such as site-location studies, market research, training and technical assistance; 7) assistance in financing the initial investment.
From the perspective of the franchisee, disadvantages of buying a franchise are:
1) you must follow a prescribed business format that covers every aspect of doing business; 2) little ability to change business models if the demand for goods or services declines; 3) potentially high initial costs and royalties; 4) little control over decisions the franchisor makes that affect the entire system.
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Which of the following would be Yip’s most appropriate response to Robinson’s third observation?
Mun Hoe Yip is valuing Pure Corporation. Pure is a simple corporation that is going out of business in five years, distributing its income to creditors and bondholders as planned in the financial statements below. Pure has a 19 percent cost of equity, 81 /3 percent before-tax cost of debt, 12 percent weighted average cost of capital, and 40 percent tax rate, and it maintains a 50 percent debt/value ratio. Yip is valuing the company using the basic capital budgeting method as well as other methods, such as EP, residual income, and claims valuation. Yip’s research assistant, Linda Robinson, makes three observations about the analysis. Observation 1: “The present value of the company’s economic income should be equal to the present value of the cash flows in the basic capital budgeting approach.” Observation 2: “The economic income each year is equal to the cash flow minus the economic depreciation.” Observation 3: “The market value added is the present value of the company’s economic profit (EP), which equals the net worth of 77,973.” Year 0 1 2 3 4 5 Balance Sheets: Assets 200,000 160,000 120,000 80,000 40,000 0 Liabilities 122,027 107,671 88,591 64,222 33,929 0 Net worth 77,973 52,329 31,409 15,778 6,071 0 Income Statements: Sales 180,000 200,000 220,000 240,000 200,000 Variable cash expenses 90,000 100,000 110,000 120,000 100,000 Fixed cash expenses 20,000 20,000 20,000 20,000 20,000 Depreciation 40,000 40,000 40,000 40,000 40,000 EBIT 30,000 40,000 50,000 60,000 40,000 Interest expense 10,169 8,973 7,383 5,352 2,827 EBT 19,831 31,027 42,617 54,648 37,173 Taxes at 40 percent 7,932 12,411 17,047 21,859 14,869 Net income before salvage 11,899 18,616 25,570 32,789 22,304 After-tax salvage value 12,000 Net income 11,899 18,616 25,570 32,789 34,304 Statements of Cash Flows: Operating cash flows: Net income 11,899 18,616 25,570 32,789 34,304 Depreciation 40,000 40,000 40,000 40,000 40,000 Total 51,899 58,616 65,570 72,789 74,304 26 Learning Outcomes, Summary Overview, and Problems part-i-02 13 January 2012; 10:13:23 Year 0 1 2 3 4 5 Financing cash flows: Debt repayment 14,357 19,080 24,369 30,293 33,929 Dividends/repurchases 37,542 39,536 41,201 42,496 40,375 Total 51,899 58,616 65,570 72,789 74,304 Investing cash flows: 0 0000 Total cash flows: 0 0000 A. The market value added is not equal to the present value of EP, although the market value of equity is equal to 122,027. B. The market value added is equal to the present value of EP, which in this case is 44,055. C. The market value added is not equal to the present value of EP, and market value added is equal to 44,055.
Organizations that display a commitment to effective human resources management are characterized by ____________
a. a lack of verifiable industry distinction and market separation b. a distinctive culture of service leadership and role modeling by top management c. a system of intensive rules and regulations d. an increase in market share and lower acquisition costs e. mediocrity and high employee turnover