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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 Year 1 500,000 - 300,000 Year 2 500,000 -165,000-165,000-165,000 - 100,000 -100,000 - 100,000 235,000 235,000 235,000 -47,000 -47,000 -47,000 Year 3 500,000 188,000 188,000 100,000 - 20,000 188,000 100,000 - 20,000 268,000 100,000 - 20,000 268,000 268,000 Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they com 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 given that the cost of capital is 8%, and that cost of goods sold is 45% of revenues?

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 Year 1 500,000 - 300,000 Year 2 500,000 -165,000-165,000-165,000 - 100,000 -100,000 - 100,000 235,000 235,000 235,000 -47,000 -47,000 -47,000 Year 3 500,000 188,000 188,000 100,000 - 20,000 188,000 100,000 - 20,000 268,000 100,000 - 20,000 268,000 268,000 Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they com 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 given that the cost of capital is 8%, and that cost of goods sold is 45% of revenues?

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 35% OB. by 41% OC. by 69% O D. by 55% Year 1 500,000 - 300,000 Year 2 500,000 - - 100,000 -100,000 165,000-165,000 235,000 -47,000 235,000 -47,000 Year 3 500,000 -165,000 -100,000 188,000 188,000 100,000 100,000 - 20,000 - 20,000 268,000 268,000 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 8%, and that cost of goods sold is 45% of revenues? 235,000 - 47,000 188,000 100,000 - 20,000 268,000
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 35% OB. by 41% OC. by 69% O D. by 55% Year 1 500,000 - 300,000 Year 2 500,000 - - 100,000 -100,000 165,000-165,000 235,000 -47,000 235,000 -47,000 Year 3 500,000 -165,000 -100,000 188,000 188,000 100,000 100,000 - 20,000 - 20,000 268,000 268,000 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 8%, and that cost of goods sold is 45% of revenues? 235,000 - 47,000 188,000 100,000 - 20,000 268,000
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