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Revenues -Cost of Goods Sold -Depreciation =EBIT - Taxes (20%) =Unlevered net income +Depreciation - Additions to Net Working Capital -Capital Expenditures =Free Cash Flow Year 0 -375,000 Year 1 500,000 Year 2 500,000 -165,000-165,000-165,000 -85,000 -85,000 -85,000 250,000 250,000 -50,000 - 50,000 200,000 200,000 85,000 85,000 -25,000 -25,000 260.000 260.000 Year 3 500,000 250,000 - 50,000 200,000 85,000 -25,000 260.000

Revenues -Cost of Goods Sold -Depreciation =EBIT - Taxes (20%) =Unlevered net income +Depreciation - Additions to Net Working Capital -Capital Expenditures =Free Cash Flow Year 0 -375,000 Year 1 500,000 Year 2 500,000 -165,000-165,000-165,000 -85,000 -85,000 -85,000 250,000 250,000 -50,000 - 50,000 200,000 200,000 85,000 85,000 -25,000 -25,000 260.000 260.000 Year 3 500,000 250,000 - 50,000 200,000 85,000 -25,000 260.000

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
Problem 1PS
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Revenues -Cost of Goods Sold - Depreciation =EBIT - Taxes (20%) =Unlevered net income +Depreciation - Additions to Net Working Capital - Capital Expenditures =Free Cash Flow Year 0 OA. by 24% OB. by 38% OC. by 29% OD. by 48% Year 1 500,000 -165,000-165,000 -85,000 - 85,000 250,000 250,000 -50,000 - 50,000 -375,000 Year 2 500,000 200,000 200,000 85,000 - 25,000 260,000 Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. Visby learns that a competitor is thinking of offering similar services, thus reducing Visby's sales. By how much could sales fall before the net present value (NPV) was zero, given that the cost of capital is 11%, and that cost of goods sold is 45% of revenues? C Year 3 500,000 -165,000 -85,000 85,000 - 25,000 250,000 - 50,000 200,000 85,000 - 25,000 260,000 20 260,000
Transcribed Image Text:Revenues -Cost of Goods Sold - Depreciation =EBIT - Taxes (20%) =Unlevered net income +Depreciation - Additions to Net Working Capital - Capital Expenditures =Free Cash Flow Year 0 OA. by 24% OB. by 38% OC. by 29% OD. by 48% Year 1 500,000 -165,000-165,000 -85,000 - 85,000 250,000 250,000 -50,000 - 50,000 -375,000 Year 2 500,000 200,000 200,000 85,000 - 25,000 260,000 Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. Visby learns that a competitor is thinking of offering similar services, thus reducing Visby's sales. By how much could sales fall before the net present value (NPV) was zero, given that the cost of capital is 11%, and that cost of goods sold is 45% of revenues? C Year 3 500,000 -165,000 -85,000 85,000 - 25,000 250,000 - 50,000 200,000 85,000 - 25,000 260,000 20 260,000
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