BIZ321 March 2013 Jane Yoo Problem Set 2 Due: Wednesday, Oct. 14th, at the beginning of the class You may work together in answering the questions, but each student should write his or her own answers. DUPLICATE ANSWERS WILL RECEIVE ZERO CREDIT. SHOW ALL YOUR WORK FOR EACH SOLUTION. Answer each question clearly, completely, and neatly. 1. Your rm 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 xed amount of rent each month plus a percentage of the gross sales generated each month. The cash ows from each of the businesses has approximately the same amount of risk. The business names, square footage requirements, and monthly expected cash ows 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? Table 1: Problem 1 Business Name Square Feet Required Expected Monthly Cash Flow Videos Now 4,000 70,000 Gords Gym 3,500 52,500 Pizza Warehouse 2,500 52,500 Super Clips 1,500 25,500 30 1/2 Flavors 1,500 28,500 S-Mart 12,000 180,000 WarVerde Drugs 6,000 147,000 Multigular Wireless 1,000 22,250 2. The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of three years. The cost of the machine is $30,000 and the machine will be depreciated straight line over its three-year life to a residual value of $0. The cane manufacturing machine will result in sales of 2,000 canes in year 1. Sales are estimated to grow by 10% pear year each year through year three. The price per cane that Sisyphean will charge its customers is $18 each and is to remain constant. The canes have a 1
cost per unit to manufacture of $9 each. Installation of the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts. It…