Assumptions: In order to determine if this was a project worth taking on we used an 8-step process to calculate the net present

value (NPV) of the project. If the NPV was a positive value, then Landau should consider making the investment. We assumed that the initial capital investment was $1,300,000 because of W&Hs purchases of equipment to begin the project plus Landaus estimated contingency costs. The initial working capital was $1,200,000; the initial capital investments subtract the contingency costs of $100,000. We only considered the change in sales that would be the result of the expansion. In this case, we took the initial given sales and multiplied it by 58% as the Yorkville location account for 58% of the overall companys sales. Furthermo re, in calculating our present value (PV) of expected operating income we considered only the inflation adjusted increase in change of sales alone. We took a cost of capital of 15% since Landau and his colleagues felt that a risk premium had to be added and settled on an after-tax cost of capital. We assumed a tax rate of 25% for W&H As stated in the case, advertising expenses were calculated and accounted for the future years if the expansion were to take place; i.e. advertising would double in the first year etc. The cost of adding 2 additional full time and 1 part-time employees and their salaries were considered if the expansion were to take place. Rent was said to increase by 38% and assumed to remain constant for the remainder of the projects life. The grand opening party was considered as a onetime expense and was added to the first years expenses. Additional utility expenses were calculated for the expanded square footage of the location and were assumed to remain constant for the rest of the projects life. The next steps were to calculate the PV of the change in net working capital (NWC) requirements, salvage values, the amount of working capital to be released at the projects end life and the capital cost allowance tax shield/lost tax shield due to salvage values. Summing all these PVs gave us a final NPV of $1,578,946.77. Therefore we recommend that Landau should make the investment and continue with the expansion.