A financial manager works at a firm that operates several shopping malls in the Chicagoland area.
The company has the opportunity to lease an additional 20,000 square feet of space in one of its malls for the next five years. It can divide up this space between the following potential new tenants. Each tenant will require a different amount of space, and each opportunity represents a different level of NPV, as indicated.
The discount rate is 10% for all options. The mall operator’s objective is to maximize NPV.
Store
NPV
Space Required (Sq. Feet)
Pet Store
$630 comma 000630,000
6,000
Fabric Store
$1,000,000
7,000
Book Store
$320,000
4,000
Luggage Store
$600,000
5,000
Hardware Store
$895 comma 000895,000
6,000
Watch Store
$310 comma 000310,000
2,000
Question A: Assuming the amount of additional space available for lease is limited to 20,000 square feet, which of the above projects is most attractive? Put another way, given the relevant resource constraint, which of these projects should the manager accept FIRST?
A.
Hardware Store
B.
Luggage Store
C.
Watch Store
D.
Pet Store
Question B: What is the TOTAL NPV created if the mall operator chooses the optimal combination of stores for its expansion?
A.
$3 comma 435 comma 0003,435,000
B.
$1 comma 205 comma 0001,205,000
C.
$2 comma 805 comma 0002,805,000
D.
$2 comma 205 comma 0002,205,000
Question C: Assuming the mall operator chooses the optimal combination of tenants, how much mall space is left unoccupied?
A.
The available 20,000 spare feet of space is fully utilized. There is no space left unoccupied.
B.
1,000 square feet of space is left unoccupied.
C.
5,000 square feet of space is left unoccupied.
D.
2,000 square feet of space is left unoccupied.
Put another way, given the relevant resource constraint, which of these projects should the manager accept FIRST?Question B: What is the TOTAL NPV created if the mall operator chooses the optimal combination of stores for its expansion?Question B: What is the TOTAL NPV created if the mall operator chooses the optimal combination of stores for its expansion?Question C: Assuming the mall operator chooses the optimal combination of tenants, how much mall space is left unoccupied?Question C: Assuming the mall operator chooses the optimal combination of tenants, how much mall space is left unoccupied?