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Dream Dinners: Evaluating a Franchise Opportunity - Case Study Example

Summary
What expenses did the pro forma statements conveniently leave out?
When comparing the pro forma projections in Exhibit I to the actual result…

Extract of sampleDream Dinners: Evaluating a Franchise Opportunity

But when it comes to Exhibit II there is losses seen in some months and also the end profit is not satisfactory .If we compare two of the exhibits we can see that the Dream Dinners is doing averagely good because their expense is high in some months and the end profit is not fair enough. In the Exhibit one, we can see that the sales is high and even when expenses were increasing there was enough profit. So it can be understood that there is difference in the level of expense and profit when it comes to Dream Dinners business performance is in actual result. The pro forma statement has conveniently left out some expenses like telephone, professional fees and rent
Break-even point in number of sales normally is calculated using the following method. It is by calculating the companys total fixed expenses by the contribution margin ratio. Here the ratio can be calculated using company totals or per unit amounts. We will compute the contribution margin for the company in the following way.
3. Based on Exhibit I prepare a discounted cash flow analysis (NPV). Assume the different scenarios in Exhibit I represents year one through four. Are there any other operating costs that should be considered? Assume a 35% tax rate, depreciation rates as presented in Exhibit II, a cost of equity capital of 20%, and an operating profit valuation multiple of 5. Apply the valuation multiple to the projected cash flow in year four add it to the projected cash flow for year three. Does the venture appear profitable?
Generally, the term NPV stands for Net Present Value, which is a Discounted Cash Flow (DCF) .It is a method used in forecasting the long run desirability of an investment (capital outlay). If the net present value of a prospective business is shown to be a positive number then the investment can be deemed as desirable. However, if it shown to be a negative numbers then the investment seem to be undesirable. The outflow and inflow in a business decides the discounted ... Read More
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