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Lecture 5

Kensaton Convenience Store - Directed Case - Week 5.docx

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ACC 110
Marla Spergel

Kenaston Convenience Store The Kenaston Convenience Store (KCS) is a local convenience store located near a subdivision in Regina. KCS opened about three years ago and is owned and operated by the Wu family. The store has been very successful and now that the neighbourhood has matured and the population is large enough, a major chain of convenience stores, Community Mart Ltd. (CML), is interested in buying KCS so that it can establish a presence in the area. It is CML’s usual practice to only move into an area once the population density has reached a certain level. It prefers to buy out an existing convenience store in an area because it gets the benefit of an established location and eliminates a competitor. You are CML’s location evaluator. It’s your job to make contact with the owners of established convenience stores that CMS might be interested in and evaluate their suitability for acquisition. Your preliminary evaluation of KCS is that it is a potential candidate for acquisition and your initial discussions with Mr. Wu were favourable. Mr. Wu has agreed to allow you to look at KCS’s most recent income statements. The income statements are presented below: Kenaston Convenience Store Income Statements for the years ended March 31 2009 2008 Revenue $417,250 $368,425 Cost of sales 258,695 225,845 Gross Margin 158,555 142,580 Expenses Amortization of capital 32,000 34,200 assets Interest 15,200 17,400 Utilities 14,700 13,900 Other 7,500 6,200 Advertising and 6,200 4,500 promotion Salaries and wages 2,000 2,200 Repairs and maintenance 4,150 2,750 Income taxes 12,565 5,400 Total expenses 94,315 86,550 Net income $64,240 $56,030 In addition, you obtained the following information from your discussion with Mr. Wu and from observing the business: 1 KCS is located in a two-storey, 30-old building located at the edge of the new subdivision. The building cost $300,000 and there is a $210,000 mortgage on it. The Wu family
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