Assumptions The following are the assumptions for each store concept: Standalone Store in a Store Initial Investment $2,400K $900K Life (years) 7 5 Customers per year 200K 100K Customer bill per visit $18.00 $14.00 Food and drink cost per customer $1.30 $1.30 Other VC as percentage of Sales 65% 46% Total Fixed Costs per year $350K $300K Depreciation expense per year $200K $100K Tax rate 18% 18% The systematic risk as measured by the CAPM Beta is estimated at 1.3 (you may use a risk-free rate of 1.5% and an expected market risk premium of 5.5%). Given these assumptions: 1. Calculate estimated net income and after-tax cash flow for each store concept per year. 2. What is the NPV of each store concept? 3. What is the IRR of each store concept? 4. Calculate the break-even number of customers per year for each concept at the profit, after-tax cash flow and NPV levels (in the above models, the cash flows per year are constant, thus, customers needed to break-even at the NPV level is a meaningful question). 5. (In this question, only calculate answers for the stand-alone concept.) Suppose the management team consider the number of customers per year for the stand-alone store concept as the most uncertain of the inputs into the models (the customer traffic in the store-in-store concept is fairly predictable as the store goes inside an existing mall (pre-COVID) or other larger store - thus, the customer traffic can be estimated with precision). The value of 200K customers per year given earlier for the average annual customers in the stand-alone store concept is the EXPECTED value - the actual number of customers per year are actually distributed according to a normal distribution, with mean 200K and standard deviation of 10K customers.4 a. Using a simulation of 10,000, create a histogram of the standalone store's NPV. b. Show the mean value of NPV across the 10,000 simulations approximate your exact answer from 2., above. c. Based on this simulation, what is the estimated probability that any particular store standalone store will see a realized NPV of zero or below - in other words, what is the chance we invest in a standalone store, and it turns into a failure? 6. Based on historic data, we can break the prospects for the Store in Store concept into 4 scenarios. These can be described as follows: Probability Customers per year (K) Customer bill per visit ($) Other VC as percentage of Sales Exceptional 15% 105 17.00 47.0% Average 55% 105 15.00 46.0% Slow 20% 90 11.00 45.0% Poor 10% 85 10.00 45.0% 100% All other inputs are the same as the original assumptions (for example, depreciation is $100K per year for the Store in Store concept in each scenario). a. What is the expected NPV of the Store in Store concept? b. What is the expected IRR of the Store in Store concept? c. What is the standard deviation of NPV of the Store in Store concept?