Your firm is preparing to open a new retail strip mall and you have multiple bus
ID: 2645672 • Letter: Y
Question
Your firm is preparing to open a new retail strip mall and you have multiple businesses that would like lease space in it. Each business will pay a fixed amount of rent each month plus a percentage of the gross sales generated each month. The cash flows from each of the businesses has approximately the same amount of risk. The business names, square footage requirements, and NPV (net present values) for each of the businesses that would like to lease space in your strip mall are provided below:
If your new strip mall will have 15,000 square feet of retail space available to be leased, to which businesses should you lease and why?
Explanation / Answer
Business Name Square Feet Required Expected NPV Expected NPV per Square Feet Ranking Videos Now 4,000.00 70,000,000.00 17,500.00 5.00 Gords Gym 3,500.00 52,500,000.00 15,000.00 7.00 Pizza Warehouse 2,500.00 52,500,000.00 21,000.00 3.00 Super chips 1,500.00 25,500,000.00 17,000.00 6.00 30 1/2 Flavours 1,500.00 28,500,000.00 19,000.00 4.00 S-Mart 12,000.00 180,000,000.00 15,000.00 7.00 WalVerde Drugs 6,000.00 147,000,000.00 24,500.00 1.00 Multigular Wireless 1,000.00 22,250,000.00 22,250.00 2.00 We have to do Capital rationing i.e. Allocate 15000 feet to those businesses which Maximise return We have dne ranking of businesses based on maximum NPV per square feet. Projects which rank higher would be selected and objective would be to maximise NPV Business Name Square Feet Required Expected NPV WalVerde Drugs 6,000.00 147,000,000.00 Multigular Wireless 1,000.00 22,250,000.00 Pizza Warehouse 2,500.00 52,500,000.00 30 1/2 Flavours 1,500.00 28,500,000.00 Videos Now 4,000.00 70,000,000.00 15,000.00 320,250,000.00
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