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Guthrie's Golden Fried Chicken Fingers Franchise
Name of student
Institutional Affiliation

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Given Information for the franchise:
Startup costs = $ 350,000 No Depreciation
Equipment cost = $ 500,000 Depreciation based on 5-year MACRS schedule
No. of years of business operation - 7 years.
Sale value of business after 7 years = $ 1,600,000
Working capital requirement = $ 30,000 in year 0 & then $ 5,000 per year thereafter
Sales = $ 200,000 in year 1 & then growth of 10% per year thereafter
Variable operating expenses = 50% of sales
Fixed operating expense = $ 50,000 in year 1 & then increase of $ 3,000 per year thereafter
Tax rate = 21%
Required rate of return = 11%
The solution to 1:
Preparation of pro forma income statements and operating cash flow projections:
Proforma Income Statement
Particulars
Year
1
Year
2 ...
...
Year
7
Sales
Less: Variable
operating expense
(50% of sales)
Less: Fixed
operating expense

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Guthrie's Golden Fried Chicken Fingers Franchise Name of student Institutional Affiliation Given Information for the franchise: Startup costs = $ 350,000 No Depreciation Equipment cost = $ 500,000 Depreciation based on 5-year MACRS schedule No. of years of business operation - 7 years. Sale value of business after 7 years = $ 1,600,000 Working capital requirement = $ 30,000 in year 0 & then $ 5,000 per year thereafter Sales = $ 200,000 in year 1 & then growth of 10% per year thereafter Variable operating expenses = 50% of sales Fixed operating expense = $ 50,000 in year 1 & then increase of $ 3,000 per year thereafter Tax rate = 21% Required rate of return = 11% The solution to 1: Preparation of pro forma income statements and operating cash flow projections: Proforma Income Statement Particulars Sales Less: Variable operating expense (50% of sales) Less: Fixed operating expense Year 1 Year 2 ... ... Year 7 Less: Depreciation Profit before Tax Less: Tax @ 21% Profit after Tax Explanation: The income statement will start with annual sales. From the value of annual sales, we will reduce variable operation expense, fixed operating expense & depreciation as per 5-year MACRS schedule to arrive at operating margin or profit before tax. Tax will be reduced @ 21% to calculate profit after tax. Projected Operating Cash flow Statement Particulars Year 1 Year 2 ... ... Year 7 Profit after Tax Add: Depreciation Less: Additional Working capital required Annual Operating Cash f ...
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