Question: Capital Budgeting Model Lowe's FY 2011
For this component of the project, you are asked to develop a capital budgeting model for the Lowe's Expansion Plans Analysis.
A 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.