Can you take a look at what I did for this problem? Where I'm confused is what I do with the $10K sale price of the distribution center..... Should I be adding that to incremental revenues?
Please anwer the following three questions in the shaded area . You may use the space provided here as working area . Feel free to insert rows if you need additional space . 1 . High Flyer , Inc ., is considering an investment in a new distribution center . High Flyer's CFO anticipated additional earnings before interest and taxes of $100 ,000 for* the first year of operation of the center , and , over the next five years , the firm estimates that this amount will grow at a rate of 5% per year . The distribution center will* require an initial investment of $600 ,000 that will be depreciated over a five- year period toward a zero salvage value using straight-line depreciation . It is estimated that the distribution center will need operating net working capital Equal to 25% of EBIT to support operation . At the end of the 5 th year , High Flyer will sell the distribution center for an estimated amount of $10 , 000 . High Flyer's WACC is 19%6 and it faces a 30%/6 tax rate . Year GIVEN REVENUES 5 LOO, 0.0.0 Incremental REVENUEs* 5100 , 000. 00/ 5105 , 000.00 / 5110, 250.00 / 5115, 762.50 / 5121, 550. 53 | 5127, 528. 10 Growth Rate Per Year Incremental Depreciation ( 5 120 , 0010 .001 / 15 120 , 000. 001 / 15:120 , 000.00 1 / 15 120 , 000.00) | (5120 , 000. 001 / 15120, 000.00 1 Initial Investment 5600, 0.00 Incremental EBIT (520, 000.00) | (515 , 000.00 1 (59, 750.010) (54 , 237 . 50) $1 , 550. 53\ 57, 528. 15 \Depreciation 5 years TAXES ( 56, 0010.00 1\ 154 , 50,0. 00 1 (52, 925. 00 ) 151, 271. 25 $455.19 52 , 288.45 \Salvage Value 50 NOFAT 15.25, 00.0. 00 1\ \ 15:15, 500.00 1\ \ 1512 , 575 .010 ) 15:5, 508. 75 ) $2, 015. 81 $9, 916.50 Working Capital 25%/0 Plus : Depreciation 5120, 000.001 5120, 00.0.001\ 5120, 00.0. 001 $120, 000. 001 5120, 000. 001\ 5120, 0.00. 00 \Sale Price* 5 10, OOD LESS : CAFEX \5600 , 000 . 00) \WALE 155, 000.00 ) 153 , 750.0.0 1 15:1, 059. 38) 1965 T LESS : New working capital needs 152 , 437. 50 ) $387. 65 $1, 907 . 014 | Tax Rate 3.09/0 Project Free Cash Flow 5600, 000. 00 )| 585, 000.00 $95, 750.00 | 5104, 887.50 | 5113, 431. 88 | $122, 403. 47 | $131, 823. 54 15285, 788. 71 )| |Part a What is the value of this project ? NO - REJECT 3| Part b Should the company undertake this project
