You have been asked by an investor to value a restaurant using discounted cash flow valuation. For the current year, the restaurant earned pretax operating income of $750,000. Income has grown 2% annually during the last five years, and is expected to continue growing at that rate for the next two years. Net operating working capital increased by $60,000 during the current year and current year capital spending on long-lived assets exceeded depreciation by $75,000. Both working capital and the excess of capital spending over depreciation are projected to grow at the same rate as operating income. Subsequent to the second year, you believe the pretax operating income growth rate will increase to 3% per year and remain at that level into the foreseeable future. The 10-year Treasury bond rate is 2.5%, the equity risk premium is 5.5%, and the marginal federal, state, and local tax rate is 35%. The restaurantâs beta and its target debt-to-equity ratio are 1.74 and 0.67, respectively. Its pretax cost of borrowing, based on its recent borrowing activities, is 9%. 1. What is the restaurantâs enterprise free cash flow in year 1?A. $352,500 B. $420,750 C. $427,500 D. $359,550 E. $436,0502. What is the restaurantâs enterprise free cash flow in year 2?A. $370,337 B. $359,550 C. $436,050 D. $366,741 E. $388,7453. What is the restaurantâs cost of equity?A. 14.5% B. 12.07% C. 7.72% D. 7.72% E. 9.13%4. What are the restaurantâs target capital structure weights?A. 50% debt; 50% equity B. 60% debt / 40% equity C. 67%debt/ 33% equity D. 40%debt/60% equity E. 33%debt/67%equity5. What is the restaurantâs weighted average cost of capital?a. 11.04% b.7.82% c. 9.58% d.6.97% e.9.17%6. What is the restaurantâs enterprise value?a. $4,143,678 b. $5,398,701 c. $5,062,483 d. $5,740,779 e. $5,414,420

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of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.