TapsiCo is a manufacturer of soft drinks. TapsiCo owns a land inGeorgia that can be used for building a Distribution Center (DC).The company has estimated that it will cost $1M to build a hightechnology DC, which will lead to cost savings of 250 thousanddollars per year.

The company is planning to use the DC for only 3 years and sellit at book value at the end of the third year. The DC has alife-time of 5 years after which its salvage value is $500,000. Thecompany is using a straight-line method for calculating thedepreciation.

Assume a tax rate of 20% and a discount rate of 5%. Ignoreinflation.

The company wants to conduct a financial analysis of theinvestment and decide if it should build the DC. Answer thequestions below.

What is the yearly depreciation amount in thousands ofdollar?

Part 1

If TapsiCo decides to build the DC, what would be the projectedEBITDA (in thousands of dollars) associated withthe investment at the end of year 1?

Part 2

If TapsiCo decides to build the DC, what would be the projectedNOPAT (in thousands of dollars) associated withthe investment at the end of year 3?

Part 3

If TapsiCo decides to build the DC, what would be the projectedFree Cash Flow (CFC) in thousands of dollars ineach time period asked below? Assume there is no change in theworking capital as a result of building the DC.

In the beginning of year 1?

At the end of year 1?

At the end of year 2?

At the end of year 3?

Part 4

If TapsiCo decides to build the DC, what would be theNet Present Value (NPV) in thousands of dollars ofthe investment?

Part 5

TapsiCo has the option of not building the DC and insteadselling the land in the beggining of the first year. The land willsell for $450,000. With this information should the company buildthe DC or sell the land?

Build the DC

Sell the land