Question: Hi help me to answer this question DoubtCo is a manufacturer of soft drinks. DoubtCo owns a land in Georgia that can be used for
Hi help me to answer this question
DoubtCo is a manufacturer of soft drinks. DoubtCo owns a land in Georgia that can be used for building a Distribution Center (DC). The company has estimated that it will cost $1M to build a high technology DC, which will lead to cost savings of 230 thousand dollars per year.
The company is planning to use the DC for only 3 years and sell it at book value at the end of the third year. The DC has a life-time of 5 years after which its salvage value is $500,000. The company is using a straight-line method for calculating the depreciation.
Assume a tax rate of 20% and a discount rate of 5%. Ignore inflation.
The company wants to conduct a financial analysis of the investment and decide if it should build the DC. Answer the questions below.
If DoubtCo decides to build the DC, what would be the projected Free Cash Flow (CFC) in thousands of dollars in each time period asked below? Assume there is no change in the working capital as a result of building the DC.
CFC in the begining year =-1000
CFC in the end of year 1 and year 2 = 204
CFC in the end of year 3 ? (204 and 704 are wrong answer)
DoubtCo has the option of not building the DC and instead selling the land in the beggining of the first year. The land will sell for $450,000. With this information should the company build the DC or sell the land?
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
