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 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: Year 1 Year 2 Revenues Costs of Goods Sold Gross Profit Selling, General and Admin Depreciation EBIT 120 000 -60 000 60 000 -6 000 -70 000 -16 000 400 000 -200 000 200 000 -6 000 -70 000 124 000 Year 3 400 000 -200 000 200 000 -6 000 -70 000 124 000 Year 4 300 000 -150 000 150 000 -6 000 -70 000 74 000

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 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: Year 1 Year 2 Revenues Costs of Goods Sold Gross Profit Selling, General and Admin Depreciation EBIT 120 000 -60 000 60 000 -6 000 -70 000 -16 000 400 000 -200 000 200 000 -6 000 -70 000 124 000 Year 3 400 000 -200 000 200 000 -6 000 -70 000 124 000 Year 4 300 000 -150 000 150 000 -6 000 -70 000 74 000

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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A neighborhood shopping center is expected to generate after-tax cash flow of $750,000 per year (at end of year) indefinitely. If an interested buyer has a cost of money of 13 %, how much will he be willing to pay for this shopping center? A $6.64 million B) $7.50 million $5.77 million D $2.21 million
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