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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
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
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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: Year 1 Year 2 Revenues Costs of Goods Sold Gross Profit Selling, General and Admin Depreciation EBIT Income tax (30%) Profit after tax Changes in NOWC 120 000 -60 000 60 000 -6 000 -70 000 -16 000 4 800 -11 200 The net present value (NPV) for this project is closest to: a. $76,607 b. $119,888 c. -$145,283 d. -$214,525 -5,000 400 000 -200 000 200 000 -6 000 -70 000 124 000 -37 200 86 800 -5,000 Year 3 400 000 -200 000 200 000 -6 000 -70 000 124 000 -37 200 86 800 -5,000 Year 4 300 000 -150 000 150 000 -6 000 -70 000 74 000 -22 200 51 800 -5,000
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: Year 1 Year 2 Revenues Costs of Goods Sold Gross Profit Selling, General and Admin Depreciation EBIT Income tax (30%) Profit after tax Changes in NOWC 120 000 -60 000 60 000 -6 000 -70 000 -16 000 4 800 -11 200 The net present value (NPV) for this project is closest to: a. $76,607 b. $119,888 c. -$145,283 d. -$214,525 -5,000 400 000 -200 000 200 000 -6 000 -70 000 124 000 -37 200 86 800 -5,000 Year 3 400 000 -200 000 200 000 -6 000 -70 000 124 000 -37 200 86 800 -5,000 Year 4 300 000 -150 000 150 000 -6 000 -70 000 74 000 -22 200 51 800 -5,000
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