The strategic planning manager of Sports Discount Stores cannot decide how to project the real costs of opening a new store. He knows the capital investment that will be made but is not sure of the returns. In the retail business he knows there will be inflation most of the time. Both the selling prices and operating costs will increase to some degree. Sports Discount Stores has a required rate of return of 15 percent. It is anticipated that inflation will be 4 percent during the next few years. The company expects a new store to show a growth rate, without inflation, of 10 percent. First year sales are expected to be about $500,000.
Required:
a. What is the nominal rate of return for Sports Discount Stores?
b. What will the sales figure for year three be, assuming the strategic planner uses the real rate approach?
c. What will the sales figure for year three be, assuming the strategic planner uses the nominal rate approach?

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The Answer of The strategic planning manager of Sports Discount Stores cannot decide how to project the real costs of opening a new store. He knows the capital investment that will be made but is not sure of the returns. In the retail business he knows there will be inflation most of the time. Both the selling prices and operating costs will increase to some degree. Sports Discount Stores has a required rate of return of 15 percent. It is anticipated that inflation will be 4 percent during the next few years. The company expects a new store to show a growth rate, without inflation, of 10 percent. First year sales are expected to be about $500,000.
Required:
a. What is the nominal rate of return for Sports Discount Stores?
b. What will the sales figure for year three be, assuming the strategic planner uses the real rate approach?
c. What will the sales figure for year three be, assuming the strategic planner uses the nominal rate approach?

The Strategic Planning Manager of Sports Discount Stores Cannot Decide