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Crisp Markets

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Submitted By VincentMaxx
Words 1983
Pages 8
FIN203
CRISP MARKETS

By Wei-Yuan Yang 701818096
Na Zhou 701800436
Jiangan Wu 701773677

Summary We acknowledged that there are some apparent spillover effects for both traditional store and online store. For online store, which is a new business model for Crisp Markets, Crisp Markets needs to consider some aspects like WACC, payment terms & security issue, delivery and customer satisfaction. From the perspective of finance, at first, we calculate the net income and cash flow of the following six years. Then, we find out it is not appropriate for Crisp Markets to use the recommended 4% discount rate. WACC should be used as discount rate. The calculated WACC is 11.9%, which is the required return rate. After that, by using the net income we calculated beforehand and with the required return rate of 11.9%, we got both NPVs of online and traditional grocery store are positive, $3,768,359 for traditional store and $4,020,441 for online store. Meanwhile, the IRRs of traditional store and online store are 55% and 47% accordingly. The NPV of online store is approximately 6.7% higher than that of traditional store. For reason that NPV rule is the most important criteria, we recommend Crisp Markets setting up online grocery store.

1. Pro Forma Income Statement * The relevant cash flows associated with setting up traditional grocery store are: up-front renovation costs, sales, salaries, other operating expenses, rent, depreciation and taxes.
Pro Forma Income Statement of Traditional Grocery Store

* Sales are estimated to be $5,750,000 at the first year of operation and are expected to grow at 5% per year.
Sales of each year=sales of last year*1.05 * Salaries for traditional store are 25% of sales.
Salaries=sales of each year*0.25 * Other operation expense for traditional store is 40% of sales.
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