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Walmart is considering opening a small experimental store in New York City. A store is expected to have a long economic life, but the valuation
Walmart is considering opening a small experimental store in New York City. A store is expected to have a long economic life, but the valuation horizon is years. The store in New York is likely to generate revenues of $M in the first year and then it grows at But the costs of running the business are high because the margins on all the products sold are low. It is a volume business! The cost of goods sold is $M in year and it is expected to grow at per year thereafter. Selling and administration costs are likely to be $M every year as it is a small store. The tax rate is Walmart is so good at managing its stores that working capital increases can be assumed to be negligible. But since New York City is an expensive place, Walmart will have to invest $M in purchasing a building with land even though it is a much smaller property than a usual Walmart store. The good news is that this outlay can be straight line depreciated over years. Also, Walmart has estimated that the aftertax terminal value in year dollars is $M This value is the present value of all cash flows in year and beyond. What is the NPV of opening this new store if the appropriate discount rate is
Walmart is considering opening a small experimental store in New York City. A store is expected to have a long economic life, but the valuation horizon is years. The store in New York is likely to generate revenues of $M in the first year and then it grows at But the costs of running the business are high because the margins on all the products sold are low. It is a volume business! The cost of goods sold is $M in year and it is expected to grow at per year thereafter. Selling and administration costs are likely to be $M every year as it is a small store. The tax rate is Walmart is so good at managing its stores that working capital increases can be assumed to be negligible. But since New York City is an expensive place, Walmart will have to invest $M in purchasing a building with land even though it is a much smaller property than a usual Walmart store. The good news is that this outlay can be straight line depreciated over years. Also, Walmart has estimated that the aftertax terminal value in year dollars is $M This value is the present value of all cash flows in year and beyond. What is the NPV of opening this new store if the appropriate discount rate is
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