question archive True or False: Starbucks is planning to open a new store across from the student union
True or False: Starbucks is planning to open a new store across from the student union
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True or False: Starbucks is planning to open a new store across from the student union. Annual revenues are expected to be $5 million. However, opening the new location will cause annual revenues to drop by $3 million at Starbucks’ existing stadium location. The relevant sales revenues for the capital budgeting analysis are $5 million per year.
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Answer: False
Explanation:
The relevant sales revenue should be net incremental revenue to starbucks:
The net incremental revenue = Annual revenue from new store - Decrease in revenue from any existing store
= $5 million - $3 million = $2 million is the relevant revenue for the decision making.
