You are considering buying a building in downtown Asheville. The building is selling for $10 million, and you anticipate an annual FCF of $1 million. At the end of 10 years, the building will be half depreciated, and at this point you think you can sell the building for $15 million. If your cost of capital is 17%, does the building have positive NPV? Assume a 20% capital gains tax on the sale of the building in 10 years; income taxes and depreciation tax shields have been included in the annual FCF of $1 million.

1 A B ASHEVILLE BUILDING 2 Cost 3 Annual FCF 4 Sale value at end of 10 years 5 WACC 6 7 Capital gains tax on sale of building 8 9 Residual from sale in 10 years 10 Sale value 11 Book value 12 Capital gain 13 Taxes 14 Net from sale of building 15 16 Year 17 0 18 1 19 2 20 3 21 4 22 5 23 6 24 7 25 8 26 9 27 10 NN 28 29 NPV