You are the manager of a local BestDeal Stores. You have only one competitor, RadioKobe Stores, in your local electronics products market. However, you are worried that a new venture, Circuit Town Stores, may open a new store in your area. There is also a rumor that your current competitor is having bad sales year and it may close down its store. Your store is doing fine and you are considering the possibility of opening a new store in the area. Your goal is to determine and report to your headquarters whether this is a good idea or not. The headquarters requested that you prepare a Scenario Analysis on your NPV calculations for this new project. Your marketing and accounting divisions made some estimations about the relevant accounting items for the next 10 years for this new store, assuming that everything is normal, that is, there are no new competitors and no exits from the market:

Sales = $16,600,000; Variable Costs = $10,470,000; Fixed Costs=$2,000,000; Depreciation = $450,000; Tax Rate =40%; Relevant Discount Rate =6%; Initial Costs of Opening the New Store = $15,000,000;

The worst case is when RadioKobe does not close its store and Circuit Town opens a competing store in the area. Under these circumstances you will be forced to price wars and you estimate that your new store will have 20% lower sales revenue and prices might be reduced to the point that variable costs equal 60% of revenue.

The best case is when RadioKobe closes its store and Circuit Town does not open a competing store. In this case, you will be a local monopoly and you estimate that your new store will have 50% higher sales revenue and you can increase the prices so that variable costs equal 30% of revenue.

1. Prepare a table showing the relevant accounting items for case.
2. Calculate the base case (or under normal conditions) NPV of this new project.
3. Calculate the best case scenario NPV.
4. Calculate the worst case scenario NPV.