Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Textbook Question
Chapter 10, Problem 9PC
The Home Depot is a leading specialty retailer of hardware and home improvement products and is the second-largest retail store chain in the United States. It operates large warehouse-style stores. Despite declining sales and difficult economic conditions in 20X1 and 20X2, The Home Depot continued to invest in new stores. The following table provides summary hypothetical data for The Home Depot.
REQUIRED
- a. Use the preceding data for The Home Depot to compute average revenues per store, capital spending per new store, and ending inventory per store in 20X2.
- b. Assume that The Home Depot will add 100 new stores by the end of Year +1. Use the data from 20X2 to project Year +1 sales revenues, capital spending, and ending inventory. Assume that each new store will be open for business for an average of one-half year in Year +1. For simplicity, assume that in Year +1, Home Depot’s sales revenues will grow, but only because it will open new stores.
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A growing chain is trying to decide which store location to open. The first location (A) requires a $500,000 investment in average
assets and is expected to yield annual income of $70,000. The second location (B) requires a $200,000 investment in average assets
and is expected to yield annual income of $46,000.
(1) Compute the expected return on investment for each location.
(2) Using return on investment, which location (A or B) should the company open?
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Compute the expected return on investment for each location.
Location A
Location B
Numerator
Return on Investment
Denominator
ROI
Required 2 >
Chapter 10 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 10 - Prob. 1QECh. 10 - The chapter encourages analysts to develop...Ch. 10 - Prob. 3QECh. 10 - Suppose you are analyzing a firm that is...Ch. 10 - Use the following hypothetical data for Walgreens...Ch. 10 - Prob. 6QECh. 10 - Prob. 7QECh. 10 - Prob. 8QECh. 10 - The Home Depot is a leading specialty retailer of...Ch. 10 - Prob. 10PC
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