Under what condition will you change your recommendation

Assignment Help Financial Management

Reference no: EM132068802

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. Part a What is the value of this project? Part b Should the company undertake this project? Part c Under what condition will you change your recommendation?

Reference no: EM132068802

Questions Cloud

Forces considered in performing environmental scan : Discuss AMD in the context of the forces considered in performing an environmental scan and give examples.

Explain the elements of negligence and strict liability : Explain the elements of negligence and strict liability, and describe any differences between the two terms.

What is the smallest expected gain over next year : A stock has an annual return of 10 percent and a standard deviation of 61 percent. What is the smallest expected gain over next year with a probability of 2.5%

What is the percentage price change of these bonds : If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds?

Under what condition will you change your recommendation : Should the company undertake this project? Under what condition will you change your recommendation?

About the global financial issues facing the company : Assume you start from ground zero and know nothing about the global financial issues facing the company beyond what is stated here.

What the financial press is claiming the causes : Discuss the changes and what the financial press is claiming the causes are.

Exchange rates and relative inflation level of two countries : What is the relationship between the exchange rates and relative inflation levels of the two countries?

Total translated net income from the canadian subsidiary : What is your total translated net income from the Canadian subsidiary including the impact of the hedge on 3/31/2011?

User Account

All Pages