BUSI 690 Case Study Projections, NPV,
Compilation Assignment:Lululemon | 2026
Update with complete solutions.
1. When forecasting Lululemon's revenue for 2026, which method best captures the
company's shift toward a digital-first model while maintaining comparability with
historical financials?
A. Apply a single blended growth rate to total revenue based on 2025 actuals.
B. Forecast e-commerce and store revenue separately using channel-specific growth
drivers, then aggregate.
C. Use GDP growth as a proxy for all revenue segments to ensure conservatism.
D. Extrapolate the 3-year historical CAGR for total revenue without adjustment.
Answer: B. Forecast e-commerce and store revenue separately using channel-specific
growth drivers, then aggregate.
Rationale: Lululemon's digital and store channels have distinct growth trajectories and
margins; separate forecasting improves accuracy and allows scenario analysis. A blended
rate ignores mix shift, GDP proxy is too broad, and pure extrapolation fails to reflect
strategic initiatives.
2. A project to open 50 new Lululemon stores requires an initial outlay of $200 million
and is expected to generate annual after-tax cash flows of $45 million for 6 years.
Using a 9% cost of capital, what is the NPV?
A. $1.8 million
B. -$2.3 million
C. $5.4 million
D. $0.0 million (break-even)
Answer: A. $1.8 million
Rationale: NPV = -200 + 45 × PVIFA(9%,6). PVIFA = (1 - 1/1.09^6)/0.09 4.4859. 45 ×
4.4859 = 201.87. NPV $1.87 million, closest to $1.8 million. Distractors reflect common
calculation errors.
Page 1 of 72
,3. In compiling the Lululemon case, you must estimate the terminal value using the
exit multiple method. Which multiple is most appropriate for a mature athletic
apparel firm?
A. EV/EBITDA of 25x, reflecting high-growth tech peers.
B. P/E of 10x, based on the S&P 500 average.
C. EV/EBITDA of 12x, consistent with apparel sector medians.
D. EV/Sales of 0.5x, reflecting liquidation value.
Answer: C. EV/EBITDA of 12x, consistent with apparel sector medians.
Rationale: Apparel sector median EV/EBITDA is typically 10-14x; 12x is reasonable for a
mature firm. Tech multiple is too high, P/E ignores capital structure, and EV/Sales of 0.5x
is unrealistically low for a going concern.
4. Which of the following best describes the role of a sensitivity analysis in the
Lululemon NPV projection?
A. It provides a single-point estimate of NPV under the most likely scenario.
B. It identifies how NPV changes when one input variable deviates from its base case.
C. It calculates the probability of achieving a positive NPV.
D. It determines the optimal capital structure for the firm.
Answer: B. It identifies how NPV changes when one input variable deviates from its
base case.
Rationale: Sensitivity analysis examines the impact of changes in one variable at a time on
NPV, helping assess risk. Scenario analysis handles multiple variables; probability requires
simulation; capital structure is separate.
Page 2 of 72
,5. Lululemon's 2026 projected free cash flow to the firm (FCFF) is $800 million,
growing at 4% perpetually. WACC is 8%. What is the enterprise value using the
Gordon Growth model?
A. $10.0 billion
B. $20.0 billion
C. $16.0 billion
D. $13.3 billion
Answer: B. $20.0 billion
Rationale: EV = FCFF1 / (WACC - g) = 800 / (0.08 - 0.04) = .04 = $20 billion.
Other options result from using wrong growth or discount rates.
6. When building a pro forma balance sheet for Lululemon, which item is most likely
to be the plug to ensure the balance sheet balances?
A. Accounts receivable
B. Inventory
C. Revolver (short-term debt)
D. Common stock
Answer: C. Revolver (short-term debt)
Rationale: In financial modeling, the revolver often serves as the balancing plug because it
can be drawn or repaid to meet cash needs. AR and inventory are driven by operations;
common stock is not typically adjusted for balancing.
Page 3 of 72
, 7. Which of the following is a key assumption when projecting Lululemon's gross
margin for 2026?
A. Historical gross margin will remain constant at 55%.
B. Gross margin will expand due to higher full-price selling and supply chain
efficiencies.
C. Gross margin will decline due to tariffs on imports from China.
D. Gross margin is irrelevant for a retail company.
Answer: B. Gross margin will expand due to higher full-price selling and supply chain
efficiencies.
Rationale: Lululemon has guided toward gross margin expansion through pricing power
and cost controls. Assuming constant margin ignores strategic initiatives; tariff impact is a
risk but not the base case; margin is critical for retail.
8. In the context of the Lululemon case, what is the primary purpose of compiling a
sources and uses of funds statement?
A. To show how the company plans to finance its investments and operations.
B. To calculate the company's tax liability.
C. To determine the dividend payout ratio.
D. To assess the company's market share.
Answer: A. To show how the company plans to finance its investments and operations.
Rationale: Sources and uses statement details where cash comes from and where it goes,
essential for financing planning. Tax liability, dividends, and market share are separate
analyses.
Page 4 of 72
Compilation Assignment:Lululemon | 2026
Update with complete solutions.
1. When forecasting Lululemon's revenue for 2026, which method best captures the
company's shift toward a digital-first model while maintaining comparability with
historical financials?
A. Apply a single blended growth rate to total revenue based on 2025 actuals.
B. Forecast e-commerce and store revenue separately using channel-specific growth
drivers, then aggregate.
C. Use GDP growth as a proxy for all revenue segments to ensure conservatism.
D. Extrapolate the 3-year historical CAGR for total revenue without adjustment.
Answer: B. Forecast e-commerce and store revenue separately using channel-specific
growth drivers, then aggregate.
Rationale: Lululemon's digital and store channels have distinct growth trajectories and
margins; separate forecasting improves accuracy and allows scenario analysis. A blended
rate ignores mix shift, GDP proxy is too broad, and pure extrapolation fails to reflect
strategic initiatives.
2. A project to open 50 new Lululemon stores requires an initial outlay of $200 million
and is expected to generate annual after-tax cash flows of $45 million for 6 years.
Using a 9% cost of capital, what is the NPV?
A. $1.8 million
B. -$2.3 million
C. $5.4 million
D. $0.0 million (break-even)
Answer: A. $1.8 million
Rationale: NPV = -200 + 45 × PVIFA(9%,6). PVIFA = (1 - 1/1.09^6)/0.09 4.4859. 45 ×
4.4859 = 201.87. NPV $1.87 million, closest to $1.8 million. Distractors reflect common
calculation errors.
Page 1 of 72
,3. In compiling the Lululemon case, you must estimate the terminal value using the
exit multiple method. Which multiple is most appropriate for a mature athletic
apparel firm?
A. EV/EBITDA of 25x, reflecting high-growth tech peers.
B. P/E of 10x, based on the S&P 500 average.
C. EV/EBITDA of 12x, consistent with apparel sector medians.
D. EV/Sales of 0.5x, reflecting liquidation value.
Answer: C. EV/EBITDA of 12x, consistent with apparel sector medians.
Rationale: Apparel sector median EV/EBITDA is typically 10-14x; 12x is reasonable for a
mature firm. Tech multiple is too high, P/E ignores capital structure, and EV/Sales of 0.5x
is unrealistically low for a going concern.
4. Which of the following best describes the role of a sensitivity analysis in the
Lululemon NPV projection?
A. It provides a single-point estimate of NPV under the most likely scenario.
B. It identifies how NPV changes when one input variable deviates from its base case.
C. It calculates the probability of achieving a positive NPV.
D. It determines the optimal capital structure for the firm.
Answer: B. It identifies how NPV changes when one input variable deviates from its
base case.
Rationale: Sensitivity analysis examines the impact of changes in one variable at a time on
NPV, helping assess risk. Scenario analysis handles multiple variables; probability requires
simulation; capital structure is separate.
Page 2 of 72
,5. Lululemon's 2026 projected free cash flow to the firm (FCFF) is $800 million,
growing at 4% perpetually. WACC is 8%. What is the enterprise value using the
Gordon Growth model?
A. $10.0 billion
B. $20.0 billion
C. $16.0 billion
D. $13.3 billion
Answer: B. $20.0 billion
Rationale: EV = FCFF1 / (WACC - g) = 800 / (0.08 - 0.04) = .04 = $20 billion.
Other options result from using wrong growth or discount rates.
6. When building a pro forma balance sheet for Lululemon, which item is most likely
to be the plug to ensure the balance sheet balances?
A. Accounts receivable
B. Inventory
C. Revolver (short-term debt)
D. Common stock
Answer: C. Revolver (short-term debt)
Rationale: In financial modeling, the revolver often serves as the balancing plug because it
can be drawn or repaid to meet cash needs. AR and inventory are driven by operations;
common stock is not typically adjusted for balancing.
Page 3 of 72
, 7. Which of the following is a key assumption when projecting Lululemon's gross
margin for 2026?
A. Historical gross margin will remain constant at 55%.
B. Gross margin will expand due to higher full-price selling and supply chain
efficiencies.
C. Gross margin will decline due to tariffs on imports from China.
D. Gross margin is irrelevant for a retail company.
Answer: B. Gross margin will expand due to higher full-price selling and supply chain
efficiencies.
Rationale: Lululemon has guided toward gross margin expansion through pricing power
and cost controls. Assuming constant margin ignores strategic initiatives; tariff impact is a
risk but not the base case; margin is critical for retail.
8. In the context of the Lululemon case, what is the primary purpose of compiling a
sources and uses of funds statement?
A. To show how the company plans to finance its investments and operations.
B. To calculate the company's tax liability.
C. To determine the dividend payout ratio.
D. To assess the company's market share.
Answer: A. To show how the company plans to finance its investments and operations.
Rationale: Sources and uses statement details where cash comes from and where it goes,
essential for financing planning. Tax liability, dividends, and market share are separate
analyses.
Page 4 of 72
