Question Answer

This document discusses the calculation of initial investment outlay, the decision to choose the optimal location for a new coffee club franchise, and the concepts of internal rate of return (IRR) and net present value (NPV) in business finance.

Running head: QUESTION ANSWER 0
Business finance
MARCH 18, 2019
STUDENT DETAILS:

QUESTION ANSWER 1
Question 3:
A. Initial Investment Outlay
calculation of Initial Investment
outlay Amount
cost of kitchen and restaurant
equipment 600000
installation expenses 25000
net working capital 90000
initial investment outlay 715000
D. Decision to choose optimal location for new coffee club franchise-
Calculation of NPV-
Westfield
Parramatta
Sunshine
marketplace
0 year Initial investment -0.715 -0.715
1-5
Years
cash Inflow 1.4 0.9
cash outflow -0.2 -0.17
operating expenses -0.6 -0.45
Depreciation -0.12 -0.12
Net cash flow 0.48 0.16
Cash flows after tax 0.35 0.12
Depreciation 0.12 0.12
CFAT 0.47 0.24
Terminal value cash flow 0.01 0.02
Working capital recovered 0.09 0.09
NPV 0.57 0.02
NPV in million terms 569100 15000
Calculation of IRR 15% 15%
0 -0.715 -0.715
1 0.47 0.24
2 0.47 0.24
3 0.47 0.24
4 0.47 0.24
5 0.57 0.02
IRR 60% 13%

QUESTION ANSWER 2
The internal rate of return refers to a return at that NPV of the project is 0. In the case where,
IRR is more than a required return, the project can be accepted (Zore, et. al, 2018). On the
other hand, in case where IRR is less than the required return, the project is not acceptable
(Lu, et. al, 2016). In the given problem, IRR of Westfield Parramatta is 60%, which is more
than 15%. The IRR of Sunshine marketplace is 13%, which is less than 15% (Mellichamp,
2017).
The rationale behind NPV method is to assess contribution of the wealth by the projects to
the stakeholders (Adusumilli, Davis & Fromme, 2016). The NPV best assessment tool. The
reason is that this method considers the required return by stakeholders and time value of
money. The project of higher net present value should be accepted in comparison of the
project having less net present value. In this given problem, the NPV of Westfield Parramatta
is 0.57 and NPV of Sunshine marketplace is .02. Thus, NPV of Westfield Parramatta is
higher. In this way, Westfield Parramatta will be the optimal location for the new the coffee
club franchise (Ng & Beruvides, 2015).

QUESTION ANSWER 3
References
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Lu, I. R., Heslop, L. A., Thomas, D. R., & Kwan, E. (2016). An examination of the status and
evolution of country image research. International Marketing Review, 33(6), 825-850.
Ng, E. H., & Beruvides, M. G. (2015). Multiple internal rate of return revisited: frequency of
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Gallo, A. (2016). A refresher on internal rate of return. Harvard Business Review Digital
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Mellichamp, D. A. (2017). Internal rate of return: Good and bad features, and a new way of
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