Group Project for Crip Market

Group project for Crip market

Fin 203 Section A

                                                 Group members: Kai Liu                                                                             MingKun Sun

Renren Zhang

The relevant cash flows associated with each project:

As shown in the Pro-forma Income Statements of Traditional Grocery Store Decision and Online Shopping Decision, the relevant cash flows associated with each project as following:

For traditional store:  up-front renovation costs, the rent cost, sales, other operating expenses, depreciation expenses and taxes.

For online store:  up- front investment, additional investments (including large servers), taxes, sales, salaries and operating expenses.

Cash flow analysis

The Pro forma income statements for the next 6 years

Note:

Since the upfront costs for both traditional and online grocery store are given in a range, we arbitrarily chose the largest number. As we all know that if we use the largest initial costs to appraise the project, we can accept the project, then any other initial costs that smaller than the largest costs, we can accept the project definitely. So when we appraise the project, we use the largest initial costs.

Depreciation is only applied to equipment and furniture, so the straight-line deprecation with zero salve value is considered into the traditional grocery store option only in this project.

The pro forma income statements for the next 6 years for each store are the following:

• Traditional store

[pic 1]

• Online store

[pic 2]

Other consideration:

• The spillover effects:

In economics, spillover effects are economic events in one context that occur because of something else in a seemingly unrelated context. In this question, the spillover effect is the influence in other contexts created by the new grocery store. In my opinion, the grocery store can have positive spillover effect and negative spillover effect.  For the positive spillover effect, there is no doubt that the new open grocery store can bring many job opportunities for the local people.  Also, the new store will boost the production of the commodity sold by the grocery.  So it will improve Brooklyn’s economy.  For the negative spillover effect, the more people mean more activities. So it will aggravate traffic congestion. What’s more, it will create more waste and have bad effect in living condition.