Project Analysis – Assuming TGT will be opening a new store. (All numbers are based on
current financial reports available)
14. Approximate cost of opening a new store is $25 million
Assume revenues of $41 million for year 1, but will grow by 2% per year for 10 years.
Operating costs are expected to be 70% of revenues.
General and administrative expenses are expected to be 18% of revenues.
Depreciation is straight line for 10 years
Use 22% tax rate (same as for cost of capital)
Use your cost of capital (from #13 as your discount rate
Assuming 10 years of operating cash flows, calculate the NPV and IRR for the project.
Use the following information calculate the best case and worst case scenarios.
Base Lower Upper
Revenue growth 2.0% 0.0% 5.0%
Operating cost 70.0% 65.0% 75.0%
Investment $25,000,000 $22,000,000 $28,000,000
Assume we are analyzing a replacement project instead of a new project. Explain the
process for analyzing this type of project.