A garage is installing a new bubble-wash car wash, which requires an initial investment of $280,000 in year 0. It will promote the car wash as a fun activity for the family and it is expected that the novelty of this approach will boost sales in the medium term. The garage plans on using an opportunity cost of capita of 10% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projections: Year 1 Year 2 Revenues 120 000 400 000 Cost of goods sold -66 000-206 000 Year 3 400 000 -206 000 Year 4 300 000 -156 000 Depreciation -70 000 -70 000 -70 000 -70 000 -EBIT -16 000 124 000 124 000 74 000 Taxes (30%) 4 800 -37 200 -37 200 -22 200 =Profit after tax -11 200 86 800 86 800 51 800 Changes in NOWC -5 000 -5000 -5.000 -5000 The net present value (NPV) for this project is closest to: O a. -$145,283 Ob. $76,607 Oc-$214,525 Od. $119,888
A garage is installing a new bubble-wash car wash, which requires an initial investment of $280,000 in year 0. It will promote the car wash as a fun activity for the family and it is expected that the novelty of this approach will boost sales in the medium term. The garage plans on using an opportunity cost of capita of 10% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projections: Year 1 Year 2 Revenues 120 000 400 000 Cost of goods sold -66 000-206 000 Year 3 400 000 -206 000 Year 4 300 000 -156 000 Depreciation -70 000 -70 000 -70 000 -70 000 -EBIT -16 000 124 000 124 000 74 000 Taxes (30%) 4 800 -37 200 -37 200 -22 200 =Profit after tax -11 200 86 800 86 800 51 800 Changes in NOWC -5 000 -5000 -5.000 -5000 The net present value (NPV) for this project is closest to: O a. -$145,283 Ob. $76,607 Oc-$214,525 Od. $119,888
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A garage is installing a new "bubble-wash' car wash, which requires an initial investment of $280,000 in year 0. It will promote the car wash as a fun activity for the family and it is expected that the novelty of this approach will boost sales in the medium term. The garage plans on using an opportunity cost of capital
of 10% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projections:
Revenues
-Cost of goods sold
Year 1
Year 2
120 000
400 000
Year 3
400 000
Year 4
300 000
-66 000 -206 000 -206 000 -156 000
-Depreciation
+EBIT
-70 000
-70 000
-70 000
-70 000
-16 000
124 000
124 000
74 000
-Taxes (30%)
4 800
-37 200
-37 200
-22 200
=Profit after tax
-11 200
86 800
86 800
51 800
Changes in NOWC
-5 000
-5 000
-5 000
-5 000
The net present value (NPV) for this project is closest to:
O a. -$145,283
O b. $76,607
OC -$214,525
O d. $119,888
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