Report on refurbishment or redevelopment of Leeds Foodhall

Topics: Net present value, Cash flow, Discounted cash flow Pages: 5 (1530 words) Published: December 3, 2013

Report on refurbishment or redevelopment of Leeds Foodhall

In this report we have collected figures internally and externally to evaluate and aid in the decision making process. The forecasts and analysis relate to the decision to either refurbish the foodhall, or redevelop the area into a new ‘Toys and Games’ department

For the attention of: Michelle Hardman
Manager, Leeds Store

Authors: David Shaw & Sam Morris

Date: 6/4/2011

Table of contents

Page

Introduction ……………………….……….……………………………...3 Methodology……………………….……….……………………………..3 Initial Findings……………………….....….……………………………...3 Sensitivity Analysis………………….....…….….…….….….….....….....4 Environment………….…….….……………….………….……………...4 Final Conclusion and Recommendation…….………….……………...5 References…………………….……………….........….…………………5 Appendices……………………..…………………………………………6

Introduction

This report will evaluate the figures collected for the foodhall section of the Leeds store, and compare it to data collected on a new development, Toys and Games to see which could provide a greater value to the company. After evaluating the figures we will draw conclusions on which choice would be best for the company to take and provide evidence why.

Methodology

At first we used the revenue figures collected to get a four part moving average and then created a centred moving average of these. By calculating the centred moving average we could get a middle value from the four point moving average which aided us in working out other equation values in the forecasting table.

After this we then found the estimated seasonal trends and gathered an average of the seasonal components, this was done by taking the centred average from the original revenue values. From this we were able to calculate the deseasonalised trend for each quarter of revenue, these figures helped to give the average of the seasonal trends found, this was by being compared to the centred moving average. The deseasonalised trend was then used on the graph plotted with actual monthly revenue to show the trends clearer and highlight any discrepancies. We then put a line through the points to find the best fit and see what points fell above and below the line and also found the equation of the line.

We then moved onto forecasting revenue for the next 2 years and the first quarter of 2013. To do this we used the seasonal trend figures we had calculated and added them to the estimated trends in an additive time series. By working out the future revenue we were then able to focus on the cashflow template, and compare with the future forecast of the toys and games department.

On the cash flow template we worked out the total future revenue that the foodhall could achieve each quarter and the total costs it could incur, after this we then brought in discount factors to create a more realistic number, and give us a present value for each revenue figure. We then added them all together to work out the current net present value of the foodhall refurbishment. After doing it for the foodhall, we then did exactly the same for the new department which was toys and games.

Initial Findings
The two discounted cash flow models within the appendix display the present values, and subsequently the net present value. These results can be used to distinguish which of the two options is the most financially viable, offering the highest return after costs. If we invest £27,200 in refurbishing the food hall, we expect a consequent net present value (NPV) of £850,286 (see appendix, refurbishment cash flow model). Alternatively, an investment of £142,800 to replace the food hall with a new toys and games department generates a NPV of £328,234 (see appendix, replacement cash flow model). According to the figures, the refurbishment model is far more promising, with a much higher return despite lower investment...

References: http://academic.mintel.com/sinatra/oxygen_academic/search_results/show&/display/id=480969
http://academic.mintel.com/sinatra/oxygen_academic/my_reports/display/id=545274&anchor=atom/display/id=569161
http://academic.mintel.com/sinatra/oxygen_academic/my_reports/display/id=479963&anchor=atom/display/id=554909
http://academic.mintel.com/sinatra/oxygen_academic/my_reports/display/id=479972&anchor=atom/display/id=554780?select_section=554788
Appendix
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