Investment in a new distribution center

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"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 5th year, High Flyer will sell the distribution center for an estimated amount of $10,000. High Flyer's WACC is 19% and it faces a 30% tax rate."

What is the value of this project?

Should the company undertake this project?

Under what condition will you change your recommendation?

Reference no: EM131992451

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