You are hired by Advance Auto Parts to see if their new project is worthwhile or not. Advance Auto Parts is considering opening 500 new stores that would represent an increase in sales of 8% (for the first year) over their last year-end figures. After the 1st year revenues are expected to grow at a 5% per year. They would need to invest on average $150,000 per store. The investment would depreciate in 7 years (use MACRS schedule Table 9-7). After the 5 years, only part of their investment can be sold for $ 10,000,000. Net Working Capital to start will be 100,000 per store and then it will be a 10% of the increase of Sales of all 500 new stores.

1. Estimate the costs of your project. A good proxy would be to use the same proportion of Total Costs to Sales of the Company as a whole. (look at the last 10-K report and calculate the common size income statement to look at the costs as a % of sales. Apply the same % to calculate the costs of your project).