Ap04 Capstone Case

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The Barn project is being re-submitted after initial development failed because of the disagreement with the developer. This project is aP04 store scheduled to open in March 2007, in an 11. 5acres land. And can be analyzed more in details considering below factors: NPV & IRR This project has an NPV of almost $7.6 Million higher than the accepted NPV of $13 million for the prototype and a combined IRR (for store sales and Credit sales) of 16.4% which is significantly higher than the 11% IRR for the prototype. Even If we look deeper in to the IRR components for store sales and credit sales we still see that both IRRs for the project (17.5% and 8.2%) are well ahead of the hurdle rate set by the company (9% for store cash flows and 4% for credit…show more content…
This project will need $3.4 million less than the P04 project and the only component in the investment, which will be more, compared to P04 is the building cost (378 K$). Cannibalization of other store’s sales As the nearest target store closest to the project is 80 miles away, no cannibalization of sales is expected. And this store will generate a sale of $30.5 million in 5 years, which will be almost 2.7 million dollars above expected sales from P04. This store is assumed to take it’s a maximum market share from Walmart in 2008. Store Sensitivities Even if this store has 18.1% lower sales than the forecasted level by R&P, it can achieve the accepted NPV of prototype, besides, construction cost can increase to near $10 million and still the project can achieve the expected NPV of the P04. If the stores sales decline by 10%, the project’s NPV will decrease by almost $4 millions which provides an accepted NPV of 13,340 K$ which is still above the accepted NPV of P04. Variance to prototype The Store NPV of $17,046K is $7,326K above Prototypical Store NPV. Mainly Cost of Land ($3,675K) and sales (3,603K) followed by positive benefits from real state tax are contributing to this positive variation form P04…show more content…
Adding to that the lows median income (lowest among the 5 projects) can be among the reasons why Walmart has performed well with its low price policy. Brand Awareness impact: While the closes Target is 80 miles away from the project store, it can be assumed that Target brand dose not have a well-known brand awareness. It will take time and investment for Target to increase the brand awareness and also compete with established brand such as Walmart; all expected marketing investment on brand awareness would contribute to 25% sales increase in 5 years. Further comparison with other projects in
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