Florida Car Wash is considering a new project whose data are shown below. The equipment to...
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Florida Car Wash is considering a new project whose data are shown below. The equipment to be used has a 3-year tax life. Under the new tax law, the equipment is eligible for 100% bonus depreciation, so it will be fully depreciated at t = o. At the end of the project's 3-year life, it would have zero salvage value. No change in net operating working capital (NOWC) would be required for the project. Revenues and operating costs will be constant over the project's life, and this is just one of the firm's many projects, so any losses on it can be used to offset profits in other units. If the number of cars washed declined by 40% from the expected level, by how much would the project's NPV change? (Hint: Note that cash flows are constant at the Year 1 level, whatever that level is.) Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC Equipment cost 10.0% $54,000 Number of cars washed 2,960 Average price per car Fixed op. cost $21.00 $9,000 Variable op. cost/unit (i.e., VC per car washed) $5.375 Tax rate 25.0% Florida Car Wash is considering a new project whose data are shown below. The equipment to be used has a 3-year tax life. Under the new tax law, the equipment is eligible for 100% bonus depreciation, so it will be fully depreciated at t = o. At the end of the project's 3-year life, it would have zero salvage value. No change in net operating working capital (NOWC) would be required for the project. Revenues and operating costs will be constant over the project's life, and this is just one of the firm's many projects, so any losses on it can be used to offset profits in other units. If the number of cars washed declined by 40% from the expected level, by how much would the project's NPV change? (Hint: Note that cash flows are constant at the Year 1 level, whatever that level is.) Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC Equipment cost 10.0% $54,000 Number of cars washed 2,960 Average price per car Fixed op. cost $21.00 $9,000 Variable op. cost/unit (i.e., VC per car washed) $5.375 Tax rate 25.0%
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To calculate the change in the projects NPV due to a 40 decline in the number of cars washed we need to determine the original NPV and the NPV with the reduced number of cars First lets calculate the ... View the full answer
Related Book For
Cost Management Measuring Monitoring And Motivating Performance
ISBN: 9781118168875
2nd Canadian Edition
Authors: Leslie G. Eldenburg, Susan Wolcott, Liang Hsuan Chen, Gail Cook
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