Traditional Grocery Store. Crisp Markets has to rent and renovate a space in downtown Brooklyn. The estimates for the up-front renovation costs range from $2,250,000 to $2,650,000 to be depreciated over the life of the project using straight-line with a zero salvage value. The firm has not discussed specific numbers but they are expecting to negotiate rent to be $145,000 per annum. 

Sales are expected to grow at 5% per year and the estimates of the operating costs are as follows: 

Salaries for traditional store 25% of Sales 

Other operating expenses for traditional store 40% of Sales 

Depreciation- equipment & furniture Straight-line; zero salve value

Crisp Markets has a capital structure consisting of 30% debt and 70% equity. The debt consists of loans from the Long Island Bank with an interest rate of 7.2%. The cost of equity of the shareholders is 15%. The corporate tax rate is 35%. The financial management team suggests that you use a discount rate of 4% on the projects since that is the average interest rate we earn on the CDs with Long Island Bank. 

1. What are the relevant cash flows associated with each project? Please include proforma income statements for the next 6 years.