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Florida Car Wash is considering a new project whose data are described below. The equipment to be employed has a 3-year tax life, would be depreciated on a straight-line basis over the project's 3- year life, and would encompass a zero salvage value after Year 3. No new working capital would be required. Revenues and other operating costs will be constant over the project's life, and this is just one of the firm's many projects, therefore 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 decline?

WACC 10.0%

Net investment cost (depreciable basis) $60,000

Number of cars washed 2,800

Average price per car $25.00

Fixed op. cost (excl. depreciation) $10,000

Variable op. cost/unit (that is, VC per car washed) $5.375

Annual depreciation $20,000

Tax rate 35.0%

a. $28,939

b. $30,462

c. $32,066

d. $33,753

e. $35,530 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915800

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