The firm purchases a vehicle with equity capital only, no debt. The purpose of the vehicle is to operate a taxi service for one year. This is the problem as we worked in class, but now the life of the vehicle is only one year, after which time the vehicle is worthless. Also some of the other values are different.
The firm is contemplating the following:
Vehicle acquisition cost $30,000
Years of useful life (economic life) 1
Tax rate0%
Required
Annual revenues$ 145,000
Operating expenses (excluding
Tips:
1.Depreciate straight-line over the year of useful life,down to $0 over one year.
2. The maximum dividend is paid annually.
3. Ignore any working capital effects.
4. Capital charge will be based on the assets at the beginning of each year.
Please include in the analysis:
P&L -
OCF analysis
EVA analysis
Does this project deserve consideration?
How much wealth, if any, will it create?
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