Problem
Your company bought a new distribution facility 3 years ago for $9 million. Your company currently has two options: (A) Sell the facility today for $7 million (before taxes)."(B) Alternatively, if the facility is not sold, it will produce earnings before depreciation and taxes of $2 million for the next 4 years. At the end of 4 years the facility will not be able to serve you anymore, but you will still be able to sell it for $1 million. ""The tax rate for your company is 34%. Depreciation for tax purposes of a new distribution facility is 6 years straight line and the discount rate is 10%. "When you purchased the new facility you had to increase the working capital by $1 million. This $1 million will return to the firm once the facility is sold. "Should you operate the facility or sell it?