Financial Model for NPV

Macys in Chicago is planning to open a new store in River North (close to downtown) in additon to its current stores in the nearby Loop and Magnificent Mile. It wants to conduct an NPV analysis of whether to open the new store. Explain how you would account for each of the following items (include, exclude, modify) in a financial model for an NPV analysis of the new store and why. No calculations are required.

a) The new store will use computers that are currently being unused in the Loop store. While they can be spared now, it is estimated that the Loop store will have to invest $25K in new computers one year from now as a consequence (instead of using these idle computers then).

b) The project will use a warehouse currently owned by the firm. While the warehouse is not currently being used, it can be rented out for $1,000,000 a year. The book value of the warehouse is currently $8,000,000 and it is being depreciated straight line (with 5 years remaining for depreciation).

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