Assignment:
Develop a capital budgeting model for the Lowe's Expansion Plans Analysis. For FY 2009,2010, 2011 and 2012A capital budgeting model should be formed for a single Lowe's store. The analysis consists of three steps.
1. Develop cash flows.
2. Identify the weighted average cost of capital.
3. Discount the cash flows using the weighted average cost of capital. Complete the cash flow estimation using sales growth assumptions as well as assumptions for the relation between expense items and sales. Refer to these assumptions.
The primary metric of concern in this analysis is the net present value (NPV).
A positive NPV means that the project under consideration generates value in excess of the up-front costs of the project.
The excess value is claimed by shareholders such that a positive NPV means shareholder wealth is increased while a negative NPV means that shareholder wealth is decreased by doing the project.
Recognizing the complexity and value of applying the capital budgeting model to your expansion plan analysis, this assignment and its placement in this course is designed to ensure that you have an opportunity to submit your work and receive feedback from your instructor prior to working on your final analysis for next week.
While additional information is covered in next week's studies, refer to the Capital Budgeting Model example using Home Depot data before beginning this assignment for Lowe's for help applying the model to Lowe's data.