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In the spring of 2020 Walter's pet foods was considering an investment in a new warehouse and distribution center. The planning team anticipates additional earnings
In the spring of 2020 Walter's pet foods was considering an investment in a new warehouse and distribution center. The planning team anticipates additional earnings before interest and taxes (EBIT) of $105,000 for the first year and anticipates that EBIT will grow 4.5% annually over the next 5 years. To build the new warehouse it will cost an initial $900,000 that will be depreciated over 5 years using a straight-line method to a zero-salvage value. To operate the warehouse will require net working capital of 20% of EBIT. And the firm pays an average corporate tax rate of 30%. Calculate 5-year Free Cash Flow (FCF) for the project. How is FCF impacted if growth rate is only half as high as originally planned and construction costs are 20% higher? Is this a wise investment
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