Please make the following corrections listed below to the attached paper. The sections needed to be updated are highlighted in yellow on the attach paper. Funding Choice Include the numerical breakdo
Business Case for Walmart: Expansion into E-grocery Delivery
Student Name
Institution
Business Case for Walmart: Expansion into E-grocery Delivery
Project Description
Walmart will be expanding its existing online grocery shopping platform to include a delivery service. This service will allow customers to order groceries online and have them delivered directly to their homes. This project aims to capture a larger share of the growing online grocery market and increase customer convenience, loyalty, and overall sales.
Funding Required
The total funding required for this project is estimated to be $500 million.
Direct Costs
| Category | Cost (Millions | Description |
| Technology & Infrastructure | $200 | Upgrading e-commerce platform, developing delivery app, warehouse automation |
| Marketing & Advertising | $100 | Launching marketing campaigns to promote the new service |
| Logistics & Distribution | $150 | Expanding cold chain logistics network, hiring delivery drivers, purchasing delivery vehicles |
| Operational Costs | $50 | Ongoing costs for customer service, order fulfillment, and delivery management |
| Total | $500 |
Funding Options
Debt Financing: This involves borrowing money from banks or issuing bonds.
Requirements: Walmart has a strong credit rating and could secure favorable interest rates. However, debt financing would increase the company's debt-to-equity ratio, which could impact its financial flexibility in the future.
Risks: Rising interest rates could increase the cost of borrowing, and the company would be obligated to make fixed interest payments regardless of its financial performance.
Equity Financing: This involves issuing new shares of stock to raise capital.
Requirements: Equity financing would dilute existing shareholder ownership but wouldn't add to the debt burden. However, Walmart would need to convince investors of the project's potential for profitability.
Risks: If the stock price falls after issuing new shares, it could damage investor confidence.
Self-Funding: This involves using existing cash reserves or selling off assets to finance the project.
Requirements: Walmart has a healthy cash flow and could potentially finance a portion of the project internally.
Risks: Self-funding would limit the available capital for other potential investment opportunities.
Funding Choice
We recommend a combination of debt financing (70%) and self-funding (30%).
Debt financing provides access to a larger pool of capital at a potentially lower cost than equity financing.
Walmart's strong financial position allows for a significant portion of self-funding, mitigating the risks associated with taking on excessive debt.
WACC (Weighted Average Cost of Capital)
Based on Walmart's current capital structure and recent interest rates, the estimated WACC is approximately 5.5%.
Cost of Debt: 3.5% (assumed based on recent corporate bond yields)
Cost of Equity: 7.0% (assumed based on the Capital Asset Pricing Model (CAPM))
Weight of Debt: 70% (70% of total funding)
Weight of Equity: 30% (30% of total funding)
WACC Calculation
(0.70 x 3.5%) + (0.30 x 7.0%) = 5.5%
This WACC represents the minimum rate of return that Walmart needs to achieve on its investment in the e-grocery delivery project to satisfy its investors.
Three-Year Projected Income Statements
| Income Statement Item | Base Year (2024) | Year 1 (2025) | Year 2 (2026) | Year 3 (2027) |
| Total Revenue (in millions) | $638,780 | $680,000 | $725,500 | $777,325 |
| Cost of Revenue (in millions) | $429,000 | 45% of Total Revenue | 45% of Total Revenue | 45% of Total Revenue |
| Gross Profit (in millions) | $209,780 | $235,000 | $280,250 | $332,325 |
| Operating Expenses (in millions) | $117,800 | 56% of Gross Profit | 56% of Gross Profit | 56% of Gross Profit |
| Operating Income (in millions) | $91,980 | $104,200 | $124,900 | $146 |
The projected income statements show a steady increase in total revenue, gross profit, operating income, and net income over the three-year period. This growth is driven by the projected increase in revenue from the e-grocery delivery service.
References
https://www.walmart.com/cp/food/976759
Investopedia. (2023, January 26). Debt financing. https://www.investopedia.com/terms/d/debtfinancing.asp
Investopedia. (2023, January 26). Equity financing. https://www.investopedia.com/terms/e/equityfinancing.asp
Investopedia. (2023, January 26). Self-funding. https://www.investopedia.com/
https://www.forbes.com/sites/forbesfinancecouncil/2024/01/11/balancing-act-navigating-the-fine-line-between-equity-investment-and-debt-financing/
https://corporatefinanceinstitute.com/
