Currently, we operate three retail stores, one each in North Vancouver, Richmond, and Surrey. We would like to add another store in North Vancouver and one in South Surrey in 2020.

We would need to invest about $280,000 per store in working capital (inventory), which we would get back when the store leases expire at the end of five years. The following are my estimates of costs and sales per store based on 2018 results and the fact that these are new market areas for us.

Cooked pizza sales

$3,000 per day

Frozen pizza sales

$1,200 per day

Gross margin

25% on cooked pizza

35% on frozen pizza

Rent

$5,000 per month; rent will increase by 5% per year

Utilities

$800 per month

Wages

$15 per hour per employee, 2.5 employees working 10 hours per day, open 300 days per year

Other relevant information:

The volume of frozen pizza will increase by 5% each year due to the new crust manufacturing process. Sales of cooked pizzas are expected to grow by 2% per year.

All new investments should provide Great Northern with at least a 15% return.

The annual tax shield from CCA is $50,000.

Our tax rate is 30%.

Each new store will need two pizza ovens at $40,000 per oven.

Other furniture, equipment, and freezers would cost $45,000 per store.

calculate the NPV