Please answer the following questions. Please write all your work. You will be graded on your process, NOT on achieving the correct answer. Please staple all pages together. Include your name on every page. Late homeworks will not be accepted. 1) Suppose you work for Meijer, a large grocer headquartered in Michigan. 20 years ago, Meijer bought a parcel of land on the outskirts of Lafayette, Indiana. It is currently being rented to a farmer. They intended to build a new store on the lot after a proposed new highway was complete. However, when the new highway was built it went in a different direction and now they must decide whether to build the new store. You ask around and find the following information from the following departments (all numbers are in thousands of dollars):

The sales department tells you:

Annual Revenue: $2400

The operations department tells you:

Inventory Required on Shelves: $140

Annual Cost of Goods Sold: $1500

Annual Cost of Running Store: $500

Annual Allocated Overhead from HQ: $80

The forecasting department tells you:

Loan to fund construction: $300

Interest Rate: 4%, loan is interest only (no principle payments)

Weighted Average Cost of Capital: 13%

Depreciation Schedule: Straight-line depreciation over 40 years

Tax Rate: 30% for income, 15% for capital gains

The construction department tells you:

Cost of environmental review (already completed): $65

Purchase Price of Land 20 years ago: $1000 (hint: land is not depreciated)

Current Market Value of Land: $1100 (hint: land is not depreciated)

Current Pre-Tax Income from renting land out: $75/year

Cost of Construction (Labor & Materials): $1800

1a) Your boss tells you to find the unleveraged incremental cash flow of the project for the next four years. Write your answer in the form of a pro forma statement on the next page.

1b) Should you approve this project? Why or why not?