Reference no: EM132596619

Imtiaz super stores, a leading name in retailer industry, currently operates ten retail outlets in Sindh and Punjab. Management is contemplating building an eleventh retail store in DHA Islamabad across from its most successful retail outlet in nearby Rawalpindi. The company already owns the land for this store, which currently has an abandoned warehouse located on it.

Last month, the marketing department spent Rs.120, 000 on market research to determine the extent of customer demand for the new store. Now Imtiaz stores, must decide whether to build and open the new store DHA Islamabad. Which of the following should be included as part of the incremental earnings, what will be considered as sunk cost/ opportunity cost, what items will be considered as capital expenditure for the proposed new retail store?

Read the whole scenario and provide to the point answer of the following questions.

a) The cost of the land where the store will be built.

b) The cost of demolishing the abandoned warehouse and clearing the lot.

c) The loss of sales in the existing retail outlet, if customers who previously drove to Rawalpindi to shop at the existing outlet become customers of the new store instead.

d) The Rs.120, 000 in market research spent to evaluate customer demand.

e) Construction costs for the new store.

f) What if the existing land sold and proceeds will be used for the construction of new store.

g) Interest expense on the debt borrowed to pay the construction costs.