Waldo County Mall

BUS 7040

Chapter 10

Discussions

Gerald P. Porter

09/26/15

Week 4

Instructor

Dr. Henry Cooper

California Miramar University

Waldo County mall project will build a mall and require projected revenue over a 17 period. The financial manager will look over the figures of the 90 million dollar investment to come up with several possibilities. The possibility is to discover if the investment will over a period of time produce enough profits to move forward. A Sensitivity and Scenario analysis were to be used in revealing pro’s and con’s and how decipher results.

Sensitivity analysis was conducted to find out what possible changes can occur with costs, sales, construction, operations and maintenance. Financial manager need to be prepared increasing costs, pricing pressure of inflation, other changing business conditions or the “what if” breakdown.

With a positive growth in store sales and tenants renting store space, the NPV will be steady around 30 million with a break-even in year 7. A profit drives up revenue for the project. The rental space will rise about a percent per year which should keep tenants current with inflation. If inflation rises then sales revenue will decrease. Keeping renter on long-term lease, sales revenue may diminish with inflation, other the hand, profits from sales and rent will continue.

There is a Scenario analysis that shows the best and worst case development. The negative side is when cash flow fails to increase over the estimated projection. Break even does not occur at the 7 year mark, rather a loss of 45 million. If inflation, maintenance, operation cost and etc... Skyrocket to a point where rent is out of range. Estimates will favor not to plan on building a mall in this location. Tenants may not rent store space due to commitment to a long-term leases or sharing store sales.

Best case is that the project goes according to plan with year 4 has a base where the project goes from negative to positive cash flow. Even...