Question
You are the CFO of Sunland, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new
You are the CFO of Sunland, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,800 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $29,300,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $1,000,000 in additional working capital immediately, and recover it at the end of the investment. Your firms marginal tax rate is 30 percent. The opportunity cost of opening up the store is 11.80 percent. What are the incremental free cash flows from this project at the beginning of the project as well as in years 119 and 20? (Do not round intermediate calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the nearest dollar, e.g. 5,265.)
Incremental cash flow at the beginning of the project | $ | ||
Incremental cash flow in the years 1-19 | $ | ||
Incremental cash flow in the year 20 | $ | ||
NPV of the project | $ |
Should you approve it?
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