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 Year 3 Year 4 Revenues 120 000 400 000 400 000 300 000 -Cost of goods sold -Depreciation -66 000 -206 000 -206 000 -156 000 -70 000 +EBIT -16 000 -70 000 124 000 -70 000 -70 000 124 000 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 -5000 -5 000 The net present value (NPV) for this project is closest to: O a. -$145,283 O b. $76,607 O c. -$214,525 O d. $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 capital of 10% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projections: Year 1 Year 2 Year 3 Year 4 Revenues 120 000 400 000 400 000 300 000 -Cost of goods sold -Depreciation -66 000 -206 000 -206 000 -156 000 -70 000 +EBIT -16 000 -70 000 124 000 -70 000 -70 000 124 000 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 -5000 -5 000 The net present value (NPV) for this project is closest to: O a. -$145,283 O b. $76,607 O c. -$214,525 O d. $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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