Metro Car Washes, Inc., is reviewing an investment proposal. The initial cost as well as the estimate of the book value of the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year are presented in the following schedule. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Year @12345 Initial Cost and Book Value $240,000 160,000 96,000 48,000 16,000 Annual Net After-Tax Cash Flows $103,000 89,000 75,000 61,000 47,000 Annual Net Income $23,000 25,000 27,000 29,000 31,000 Management uses a 14 percent after-tax target rate of return for new investment proposals.
Metro Car Washes, Inc., is reviewing an investment proposal. The initial cost as well as the estimate of the book value of the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year are presented in the following schedule. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Year @12345 Initial Cost and Book Value $240,000 160,000 96,000 48,000 16,000 Annual Net After-Tax Cash Flows $103,000 89,000 75,000 61,000 47,000 Annual Net Income $23,000 25,000 27,000 29,000 31,000 Management uses a 14 percent after-tax target rate of return for new investment proposals.
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:Metro Car Washes, Inc., is reviewing an investment proposal. The initial cost as well as the estimate of the book value of
the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year are
presented in the following schedule. The salvage value of the investment at the end of each year is equal to its book
value. There would be no salvage value at the end of the investment's life.
Year
0
1244HO
3
5
Initial Cost
and Book Value
$240,000
160,000
96,000
48,000
16,000
Exercise 16-37 Part 3
Net present value
Annual Net After-Tax
Cash Flows
$103,000
89,000
75,000
61,000
47,000
Annual
Net Income
Management uses a 14 percent after-tax target rate of return for new investment proposals.
Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)
$23,000
25,000
27,000
29,000
31,000
3. Compute the proposal's net present value. (Round intermediate calculations to the nearest whole dollar.)
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