Task: Internal Rate of Return
You have been offered the opportunity to purchase a franchise of Sunshine Juice Stores. You will have to pay $258,635 for the initial investment in the store and its equipment, plus $30,000 per year for the lease payments and the franchise fee. The franchise contract obligates you for 10 years.
Operating costs for each year will be $225,000, and the expected revenue is $298,000 a year. Your hurdle rate is 10%. (Ignore income taxes.)
Required:
1. Does this investment yield a satisfactory rate of return?
2. What qualitative factors might be considered?