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A financial manager works at a firm that operates several shopping malls in the Chicagoland area….

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A financial manager works at a firm that operates several shopping malls in the Chicagoland area.

The company has the opportunity to lease an additional? 15,000 square feet of space in one of its malls for the next five years. It can divide up this space between the following potential new tenants. Each tenant will require a different amount of?space, and each opportunity represents a different level of? NPV, as indicated.

The discount rate is? 10% for all options. The mall? operator’s objective is to maximize NPV.

Store

NPV

Space Required?(Sq. Feet)

Pet Store

?$630,000

?6,000

Fabric Store

?$1,000,000

?7,000

Book Store

?$320,000

?4,000

Luggage Store

?$600,000

?5,000

Hardware Store

?$895,000

?6,000

Watch Store

?$320,000

?2,000

Question? A: Assuming the amount of additional space available for lease is limited to? 15,000 square? feet, which of the above projects is most? attractive? Put another? way, given the relevant resource? constraint, which of these projects should the manager accept? FIRST?

A.

Hardware Store

B.

Watch Store

C.

Pet Store

D.

Luggage Store

Question? B: What is the TOTAL NPV created if the mall operator chooses the optimal combination of stores for its? expansion?

A.

?$3,445,000

B.

?$1,215,000

C.

?$2,815,000

D.

?$2,215,000

Question? C: Assuming the mall operator chooses the optimal combination of? tenants, how much mall space is left? unoccupied?

A.

?1,000 square feet of space is left unoccupied.

B.

The available? 15,000 spare feet of space is fully utilized. There is no space left unoccupied.

C.

?2,000 square feet of space is left unoccupied.

D.

?4,000 square feet of space is left unoccupied.

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