TapsiCo is a manufacturer of soft drinks. TapsiCo owns a land in Georgia that can be...

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Finance

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 170 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.
Part 1) If TapsiCo decides to build the DC, what would be theprojected EBITDA (in thousands of dollars)associated with the 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? Choose one of the option: 'Build the DC'or "Sell the land"

Answer & Explanation Solved by verified expert

4.4 Ratings (598 Votes)

000 Part1 EBITDA at the end of year 1 170 Part2 NOPAT at the end of year 3 EBITDA at the end of year 3 170 Cost of asset 1000 Salvage Value 500 Useful Life in years5 Depreciation See Answer

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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 170 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.Part 1) If TapsiCo decides to build the DC, what would be theprojected EBITDA (in thousands of dollars)associated with the 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? Choose one of the option: 'Build the DC'or "Sell the land"