Guthrie's Golden Fried Chicken Fingers Franchise

The pro forma income statement for Guthrie's Franchise reveals that the 350,000 is
the non-depreciable real estate cost. This balance is calculated in the book value of
fixed assets. The equipment, on the other hand, costs 500,000 and is depreciable.
The initial gross investment is reported to be $880,000. The required rate of return
on the franchise was 11%, and the annual tax rate was 21%. The benefit on sales was
calculated by subtracting the salvage or reclaimed amount of 1,600,000 from the
total book value of an asset (350,000). Following that, capital profits of 262,500 were
achieved by measuring a gain on assets tax rate of 21%. Finally, the net terminal
value was calculated as (1,250,000 – 262,000) = 987,500
The operational cash represents the sum of capital that the franchise expects to have
at the end of the year. According to the cash sources, the profits before income tax
over the first three years was negative. The case should be used to project any
possible cost that could arise through the franchise's business operation. Finally, the
cash loss or net gain is the volume of capital left over at the end of the year that the
company will use for investment operations. This franchise is predicting
disappointing returns, which suggests a failure for Years 1, 2, and 3, but it is showing
stable results for the remaining years, but the cumulative results suggest financial
crises.
Net Present Value
Since the minimum rate of return is 11%, this is the discount rate for net present
value (Guthrieschicken, 2020). The predicted figure is used in the expected net
present value. The franchise's estimated net present value is determined by
considering the projected cash flows for the next seven years.
The net present value estimates yield unfavorable outcomes, indicating that the
expected value is smaller than the investment value, and the franchise is not making
a profit. A negative net present value indicates that the proposal is not feasible or
reliable for investment.
Expected sales (>20%)

NPV (Opportunities)
 If revenues exceed expectations by 20%, the NPV would be favorable.
This implies that if the sum is greater than estimated, the franchise's Net Present
Value would be positive, indicating that the expenditure was worthwhile. This
demonstrates that the money generated by the investment is more valuable than
the costs; as a result, it is referred to as a worthwhile investment and a positive
investment. Since obtaining a favorable NPV as a result of increased revenue,
customers can learn about the firm's financial health and the franchise's potential to
make money on acquisitions. Similarly, if earnings are improving, there would be
positive cash profits, indicating that the firm has ample resources to cover its short-
term obligations and the net reserves are increasing.
If revenues fall short of 20%, the NPV would further decrease.

NPV (Opportunities)

A decline in revenue results in a negative net present value, which ensures the
income generated from the expenditure is worth less today than the costs; as a
result, it is a vicious investment. Similarly, if revenues decline, the franchise will be
unable to pay all expenses; they will need more investments and money to keep the
business afloat.

Recommendations
Since reviewing the franchise's pro forma financial statement and operating cash
flows, it is determined that the franchise is not making sufficiently revenue to cover
any of its short-term obligations and expenditures. The estimated cash flows over the
first three years are negative, indicating that the company would not earn a return
on its assets during these years, and the net present value is therefore negative,
indicating that the enterprise is unsuitable for investment.
According to my opinion and the projections above, I believe that we should pass on
this investment opportunity in Guthrie's Franchise because the Net Present Value is
indeed negative, which suggests that we would not be able to make a profit on our
investment in Guthrie's Franchise.

References
Guthrieschicken (2020). Retrieved from http://guthrieschicken.com/