Write-up 1

Write-ups should answer the below questions in 1-2 typed pages (not including supporting exhibits) and
are due at the beginning of class on the due date. Each individual turns in their own write-up.

Questions

1. Briefly outline Boston Chicken’s business strategy. What is their “big idea”?

2. Is there a significant risk facing Boston Chicken from potential entrants or substitutes?

3. What do you learn about Boston Chicken’s business focus from (a) the asset mix (see balance
sheet) and (b) the income statement and Note 2 (see “Revenue Recognition” section)?

4. Most of Boston Chicken’s stores are owned by franchisees. What business purpose is served by
expansion through franchising rather than through company-owned stores?

5. What are analysts, investors, and short sellers saying about Boston Chicken’s future prospects?

6. In Boston Chicken’s 1994 Balance Sheet, you will see that Notes Receivable (current and long-
term) total $200 million. Make sure you understand how these notes arise (hint: Note 8). In this
industry, notes such as these default approximately 5% of the time. Read Note 8, section (c) and
determine how much Boston Chicken has reserved for bad debt. Then, recompute after-tax net
income for 1994 assuming Boston Chicken had estimated that 5% of these Notes Receivable will
ultimately be uncollectible. Use the effective tax rate of 20.9% in your calculation.

7. Calculate 1994 “free cash flows” as operating cash flow plus investing cash flows. Are free cash
flows positive or negative? How is Boston Chicken funding it’s operations and growth?

8. How would Boston Chicken’s financial statements be different if franchise stores were company-
owned instead? Answer this question generally; don’t try to figure out exact numbers.