The December 18, 1995, issue of Forbes includes an article by Rita Koselka entitled "Tall Story."

\section*{Instructions}

Read the article and answer these questions:

(a) What is the biggest expense in running a video rental store?

(b) Over how long a period does Hollywood Entertainment Corp. depreciate its video tapes? How did the author arrive at this figure?

(c) The author asserts that, once a store is fully stocked, depreciation expense should be approximately equal to the cost of new tapes. Calculate and compare the ratios of depreciation expense to new purchases for Hollywood and Blockbuster.

(d) If Hollywood can open a new store for \(\$ 400,000\) or buy an existing store for \(\$ 1.2\) million, why might investors value Hollywood at an average of \(\$ 3\) million per store?