crisp analysis
Crisp Markets Analysis
Introduction
Crisp Markets has a business option that whether to open grocery store in downtown Brooklyn or develop the online grocery shopping. If running traditional grocery store, Crisp Markets has to rent and renovate a space in downtown Brooklyn. So the up-front renovation costs and rent should to be considered, which use the straight-line depreciation with a zero salvage value. Compared to this, the cost of branching out online grocery shopping includes up-front investments, additional investments and rent for warehouse. We think opening a traditional grocery store is better according to comparison of NVP, IRR, and discounted payback period.
Statement
As shown in the Pro-forma Income Statements, the relevant cash flows include Traditional Grocery Store that consists Incremental Cash Flow, up-front renovation costs, rent expense, salaries, other operating expenses, depreciation expense and taxes, and Online Grocery Shopping that consists Incremental Cash Flow, up-front investment, additional investments, rent expense, salaries, other operating expenses and taxes.
Because depreciation is only mentioned to equipment and furniture, the straight-line deprecation with zero salve value only need to be considered in the traditional grocery store.
There is a range between upfront costs for traditional and online grocery store, so the average value of the range is better to use to avoid overlapping error that influences the final decision. Pro-forma income statement for the next 6 years is following:
Traditional grocery store
Online grocery shopping
Because the capital structure of Crisp Markets consists of 70% equity and 30% debt, and debt is with a loan interest rate of 7.2%, it is essential to calculate the discount rate based on the weighted average cost of capital (WACC), which concentrates on Crisp Markets’ own capital structure. The cost of equity of the shareholders is 15% and the corporate tax
Introduction
Crisp Markets has a business option that whether to open grocery store in downtown Brooklyn or develop the online grocery shopping. If running traditional grocery store, Crisp Markets has to rent and renovate a space in downtown Brooklyn. So the up-front renovation costs and rent should to be considered, which use the straight-line depreciation with a zero salvage value. Compared to this, the cost of branching out online grocery shopping includes up-front investments, additional investments and rent for warehouse. We think opening a traditional grocery store is better according to comparison of NVP, IRR, and discounted payback period.
Statement
As shown in the Pro-forma Income Statements, the relevant cash flows include Traditional Grocery Store that consists Incremental Cash Flow, up-front renovation costs, rent expense, salaries, other operating expenses, depreciation expense and taxes, and Online Grocery Shopping that consists Incremental Cash Flow, up-front investment, additional investments, rent expense, salaries, other operating expenses and taxes.
Because depreciation is only mentioned to equipment and furniture, the straight-line deprecation with zero salve value only need to be considered in the traditional grocery store.
There is a range between upfront costs for traditional and online grocery store, so the average value of the range is better to use to avoid overlapping error that influences the final decision. Pro-forma income statement for the next 6 years is following:
Traditional grocery store
Online grocery shopping
Because the capital structure of Crisp Markets consists of 70% equity and 30% debt, and debt is with a loan interest rate of 7.2%, it is essential to calculate the discount rate based on the weighted average cost of capital (WACC), which concentrates on Crisp Markets’ own capital structure. The cost of equity of the shareholders is 15% and the corporate tax