Think of any retailer that operates many stores throughout the country, such as Old Navy, Hallmark Cards, or Radio Shack, to name just a few. The retailer is often seeking to open new stores and needs to evaluate the profitability of a proposed location that would be leased for 5 years. An Excel model is provided in the New Store Financial Model spreadsheet.

Use Scenario Manager to evaluate the cumulative discounted cash flow for the fifth year under the following scenarios:

Scenarios for Problem 32 Scenario 1 Scenario 2 Scenario 3 Inflation rate 1% 5% 3%

Cost of merchandise (% of sales) 25% 30% 26%

Labor cost $150,000 $225,000 $200,000 Other expenses $300,000 $350,000 $325,000 First-year sales revenue $600,000 $600,000 $800,000 Sales growth year 2 15% 22% 25%

Sales growth year 3 10% 15% 18%

Sales growth year 4 6% 11% 14%

Sales growth year 5 3% 5% 8%