1. Opening a series of new supermarkets is a major capital budgeting project for

Question

1. Opening a series of new supermarkets is a major capital budgeting project for the company. Describe and discuss the main items on the income statement and balance sheet that you think will be impacted by this new undertaking. Explain why you chose those particular balance sheet and income statement items. 2. Please also explain how the financial decisions regarding this capital budgeting project are related to management, marketing or operations decisions that the company must make (or has made) in light of the plans to open the new line of stores, i.e., how are they influenced by or do they influence those decisions?3. Choose and calculate five ratios for this company for the last two years. Make sure to select ratios that you think would be impacted by the opening of the new 365 stores, and explain your reasoning. Identify two competitors of WFM and contrast the ratios. Explain why you selected those competitors.4. Calculate the annualized stock price performance of WFM over the last 3, 5, and 10 years? How does it compare to the performance of the competitors you selected in question 3 and the S&P 500 index?

Explanation / Answer

solution 1:

Balance sheet items impacted:

Income statement items impacted:

For a major capital budgeting, we have to buy plant, machineries and equipment. This purchase will increase the balance of property, plant and equipment. New project comes up with new set of working capital requirements, therefore, current assets and current liabilities will change.

New investment will increase sales and net income. Additional depreciation will be charged on the new fixed assets, and as a result of overall activities, cash flows will improve.

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