Walmart's capital investment strategy for international expansion and cash flow analysis

Wal-Mart:

Capital Project for Expansion to New Countries

Wal-Mart is an American multinational corporation that is publicly traded. The company is known for its chain of large discount stores and warehouses. In 2010, the company was able to announce the title of 'World's Largest Public Corporation' in terms of its revenue. Since its founding in 1962, Wal-Mart has successfully built 8,500 stores in fifteen countries. However, despite such great success, the company has experienced a few failures; the company did not succeed in Germany or South Korea. Of the most success outside of the United States are stores located within South America and in Asia (WalMart.com, 2011).

3.0 Initial Investment Estimates

After sixteen years of being in Argentina, Wal-Mart has invested roughly $500 million in its expansion project (WalMart.com, 2008). Based on these figures, Wal-Mart can expect to invest around the same amount when entering another country of the same population and economic status. Assuming this is the principle amount that Wal-Mart invests and the investment is obtained through debt financing, Wal-Mart must multiply the principle balance by its interest rate. Next, it will take this number to the power of the number of years the loan is active. For instance, debt financing at the rate of ten percent for fifteen years would appear as: 500,000,000(1.10)^15=1.274794^131

4.0 Annual Incremental After-Tax Cash Flow Estimates

Net cash flows are implemented every year after a project has been officially adopted (StudyFinance.com, 2011). In determining the net cash flows of an investment, one will take the projected earnings and deduct the depreciation. Subtracting the depreciation from the gross cash flow estimates creates a change in the taxable earnings. Next, the company must add the depreciation back to the total earnings after taxes (StudyFinance.com, 2011). This will create the net cash flow. Assuming Wal-Mart's expansion project was to have a depreciable base of $500,000,000 with an earnings before taxes and depreciation of $20,000 in year one, $25,000 in year two, and $30,000 in year three, the below would demonstrate the after-tax cash flow. The depreciation is straight line, and the tax rate is at ten percent.

Year

EBTD

DEPR

EBT (1-t)

EAT

DEPR

NCF

1

$20,000

$10,000

$10,000(.9)

$9,000

+$10,000

$19,000

2

$25,000

$10,000

$15,000(.9)

$13,500

+$10,000

$23,500

3

$30,000

$10,000

$20,000(.9)

$18,000

+$10,000

$28,000