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“Waldo County”Mall Project

byStan Cochran & Allan Murdock

Case Study 2

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Tourist Mall Project

Waldo County is a well known developer

He has found the perfect location for a new mall and like he says “Location! Location! Location!”

Mr. County asks George Chavez to look over the finances and build the business case for this project by Monday morning.

Georges’ first step is to draw up a summary of projected revenues and expenses.

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Tourist Mall Info

Estimated Expenses and Revenues

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2nd Step - Different Scenarios

The next step is to form a plan of action.

Do the NPV & IRR to see if the project is worth going forward with.

Remember the 2% inflation rate!

We will use the Real Discount Rate of (1.09/1.02= .068) for figuring NPV & IRR.

The value of the land will retain its value.

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NPV & IRR

• NPV and IRR Results

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Next Steps for Analysis

Next perform a sensitivity analysis by changing one input to evaluate the differences.

One Example change retail sales at 40% less than projected.

Then we could perform a scenario analysis and consider other pro’s and con’s for the project like considering the “what ifs”.

Example: competition starts a similar project first, not enough retailers deciding to move to the mall, and construction delays due to unforeseen problems.

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NPV & IRR at Different Scenarios

Less 40% in projected Revenues

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Conclusion

In the first analysis there is a positive NPV and IRR.

Like Waldo County says “Location! Location! Location” and location is the most important aspect of any project.

Experts will tell you that location is the most important aspect of having a successful retail business ("Chosing a location," 2006).

Recommendation:

The project should move forward.

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References

Brealey, R. A., Myers, S. C., & Allen, F. (2011). Principles of Corporate Finance. New York: Mcgraw-Hill Irwin

Chosing a location for your business. (2006, April 20). Retrieved from http://www.entrepreneur.com/article/21830