Channel will be sustained for foreseeable future

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Reference no: EM131323971

Natasha Brown runs a specialist food store in Portland, Oregon. The store specializes in hard-to-find food and condiments such as Milifiore Honey from Tuscany, Blue Stilton Cheese from England, and so on. The store keeps an inventory that, valued at cost, is approximately $1.2 million. The store generates average sales of $2 million per year, with an operating margin of 8% (after tax). News about her excellent foods has spread, and Natasha is considering opening an online retail option for the limited selection of the most popular products. Many of these products are sourced from around the world and involve long lead times. Natasha would need to order a number of these items in advance to make sure she has adequate supplies. She estimates that the online channel can generate an additional $400,000 in sales. She would have to spend about $150,000 upfront to build a robust online store website. (She estimates that the cost of capital for a small business like hers is about 15%.) Natasha also expects the operating margins from the business to be the same as her existing business. Assuming that additional sales from the online channel will be sustained for the foreseeable future (in perpetuity), is this project worth undertaking?

Reference no: EM131323971

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