Question Description
Macys in Chicago is planning to open a new store in River North(close to downtown) in additon to its current stores in the nearby Loopand Magnificent Mile. It wants to conduct an NPV analysis of whether toopen the new store. Explain how you would account for each of thefollowing items (include, exclude, modify) in a financial model for anNPV analysis of the new store and why. No calculations are required.
a) Thenew store will use computers that are currently being unused in theLoop store. While they can be spared now, it is estimated that the Loopstore will have to invest $25K in new computers one year from now as aconsequence (instead of using these idle computers then).
b) The
project will use a warehouse currently owned by the firm. While the
warehouse is not currently being used, it can be rented out for
$1,000,000 a year. The book value of the warehouse is currently
$8,000,000 and it is being depreciated straight line (with 5 years
remaining for depreciation)
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