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Which franchise is riskier to you if sales forecasts not met

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Question - You wish to invest in a franchise for either one of two national chains. Each franchise has as expected annual net income after interest and taxes of $100,000. Net income for the first franchise includes a regular fixed interest charge of $200,000. The fixed interest charge for the second franchise is $40,000.

1. Which franchise is riskier to you if sales forecasts are not met?

2. Does your decision change if the first franchise has more variability in its income stream?

Reference no: EM132013620

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