You are the owner of a small hard ware store, and you are considering opening a gardening store in a vacant area in the back of your present store. You estimate that it will cost you $50,000 to set up the new store and that you will generate $10,000 in after-tax cash flows from the store for the life of the store (which is expected to be 10 years). The one concern you have is that you have limited parking; by opening the gardening store you run the risk of not having enough parking for customers who shop at your hardware store. You estimate that the lost sales from such an occurrence would amount to $3,000 a year and that your after-tax operating margin on sales at the hardware store is 40%. If your discount rate is 14%, would you open the gardening store?
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