Question
EcoBikes Inc., a retailer in the electric bike industry, currently operates five stores in the Pacific Northwest. Management is contemplating a sixth retail store in
EcoBikes Inc., a retailer in the electric bike industry, currently operates five stores in the Pacific Northwest. Management is contemplating a sixth retail store in the Great Seattle Area. The company already owns the land for this store, which currently has an abandoned warehouse located on it. Last month, the marketing department spent $15, 000 on market research to determine the extent of customer demand for the new store. Now EcoBikes must decide whether to build and open the new store. Which of the following should be included as part of the incremental cash flows for the proposed new retail store? For each item, answer Yes if it should be included as part of the incremental cash flow, and No if not. Provide a brief explanation for each of your answer. a) The cost of the land when it was purchased. b) The cost of demolishing the abandoned warehouse and clearing the lot. c) Construction costs for the new store. d) The $15,000 in market research spent to evaluate customer demand. e) The Value of the land if sold. f) The loss of sales in the existing five stores, if customers who previously shop at the existing stores become customers of the new store instead. g) Interest expense on the debt borrowed to pay the construction costs.
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