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Case Study Finance
NOVA School of Business and Economics
Corporate Finance, 2nd Semester 2012/2013

Case Study
TOSCO is a company listed in the Portuguese Stock Exchange operating a supermarket chain established in Portugal for many years. The market for traditional food retailers is saturated, and there is no room for growth under the same business model. TOSCO’s shareholders have been pressuring the management to pursue new opportunities in order to increase the value of their shares. The management of TOSCO has hired Nova Investment Bank (NIB) to study the possibility of expanding their activities to Spain. For this they will pay NIB a fixed fee of €100,000. You are an analyst at NIB and your job is to perform a financial analysis of this opportunity. Bellow you can find the number of stores they plan to have fully operational in the beginning of each year for the next 3 years (some will be rented, others will be bought).

# New Stores

Y0
0

Y1
10
Rent

Y2
20
Buy

Y3
10
Buy

Also, you know that today the average monthly rent per square meter in Spain is €30 and the market value per square meter sold is €6,000. Additionally, TOSCO will need to invest
€13,000,000 in the acquisition of a distribution center one year before the first stores open. Own stores will be fully depreciated in 20 years.
In Spain, each store will employ 50 employees, and the distribution center will employ 75.
If opened today, each employee would earn an average monthly salary of €1,000. However, these salaries will grow at a rate which is 0.5 percentage points above inflation, every year. Social security and corporate tax rates in Spain are as follows:
Coporate Tax Rate
Social Security Rate Employer
Social Security Rate Employee

30.0%
17.7%
3.7%

In Portugal, where TOSCO has 320 stores, this year (Y0) they expect to sell €3,000,000,000 with COGS of €2,100,000,000. The stores have a selling area of

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