A Company Is Planning to Move to a Larger Office

question 6

Multiple Choice

A company is planning to move to a larger office and is trying to decide if the new office should be owned or leased.Cash flows for owning versus leasing are estimated as follows.Assume that the cash flows from operations will remain level over a 10 year holding period.If purchased,the company will invest $385,000 in equity and finance the remainder with an interest-only loan that has a balloon payment due in year 10.The after-tax cash flow from sale of the property at the end of year 10 is expected to be $750,000.What is the incremental rate of return on equity to the company,if the property is owned instead of leased?

• A) 17.99%
• B) 13.26%
• C) 10.32%
• D) 12.62%

Understand the roles and responsibilities of franchisees and franchisors within the franchise agreement.

Recognize the regulatory requirements and legal documents involved in franchising, such as disclosure documents.

Identify the financial implications and commitments for franchisees and franchisors, including understanding various sources of income and expenses in franchising.

Differentiate between business-format franchising and product-distribution franchising.

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Definitions:

Financial Statement Presentation

The structured representation of the financial information, typically including the balance sheet, income statement, and cash flow statement, of an entity.

Return on Assets

This measures how efficiently a company's management is using its total assets to generate profits.

Asset Turnover

A financial ratio that measures the efficiency of a company's use of its assets to generate sales or revenue.

Average Total Assets

This metric calculates the average value of all assets owned by a company over a specific period, usually used in financial analysis to gauge productivity.