Question
Imagine based on the above article Amazon decides to open 3000 US stores (today) in 2019. Assume the spending to roll out the 3000 stores
Imagine based on the above article Amazon decides to open 3000 US stores (today) in 2019. Assume the spending to roll out the 3000 stores (from the article) would be incurred today. Assume the sales per year (for the 3000 stores) mentioned in the article would occur at the end of each year for 10 years. Due to the absence of cashiers and other staff annual variable costs would only be 10% of revenues in the first five years, and 5% of revenues in the final 5 years of the project as efficiencies increase. Annual fixed costs will be $1.5 billion per year for 10 years. In addition to the initial investment mentioned in the article, Amazon will need to secure the hardware and software capital to run the stores, which will cost an additional $7 billion today. All capital invested in the stores will be depreciated on a straight-line basis over 10 years to 0 and can be sold at the end of year 10 for $1 billion. Due to Amazon's cash management policies, they want to recover their initial investment within 2 years. Assume all cash flows occur at the end of the year and all values are in USD. Assume the tax rate is 30% over the 10 years.
Based on the above information and sources what are the free cash flows generated by Amazon's 3000 new stores over the 10 year period (refer to your excel spreadsheet)?
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