The local franchise of Jiffy Lube is thinking of buying a new lift for $90,000 that would make it easier to access the oil filter in customers' cars and save labor. The savings would increase over the project's 3-year life, in line with the projected growth of the business. The machine is to be linearly depreciated to zero and will have no resale value after 3 years. The appropriate cost of capital for this project is 14%. The company has a tax rate of 21%. Year 1 Year 2 Year 3 Cost savings 100,000 110,000 132,000 Depreciation 30,000 30,000 30,000 EBIT 70,000 80,000 102,000 Taxes (21%) Net income Depreciation FCF 1. What is the free cash flow in year 1? 2. What is the free cash flow in year 2? 3. What is the free cash flow in year 3? 4. What is the NPV of this project?
The local franchise of Jiffy Lube is thinking of buying a new lift for $90,000 that would make it easier to access the oil filter in customers' cars and save labor. The savings would increase over the project's 3-year life, in line with the projected growth of the business. The machine is to be linearly depreciated to zero and will have no resale value after 3 years. The appropriate cost of capital for this project is 14%. The company has a tax rate of 21%. Year 1 Year 2 Year 3 Cost savings 100,000 110,000 132,000 Depreciation 30,000 30,000 30,000 EBIT 70,000 80,000 102,000 Taxes (21%) Net income Depreciation FCF 1. What is the free cash flow in year 1? 2. What is the free cash flow in year 2? 3. What is the free cash flow in year 3? 4. What is the NPV of this project?
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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The local franchise of Jiffy Lube is thinking of buying a new lift for $90,000 that would make it easier to access the oil filter in customers' cars and save labor. The savings would increase over the project's 3-year life, in line with the projected growth of the business. The machine is to be linearly
The appropriate cost of capital for this project is 14%. The company has a tax rate of 21%.
| Year 1 | Year 2 | Year 3 | |
| Cost savings | 100,000 | 110,000 | 132,000 |
| Depreciation | 30,000 | 30,000 | 30,000 |
| EBIT | 70,000 | 80,000 | 102,000 |
| Taxes (21%) | |||
| Net income | |||
| Depreciation | |||
| FCF |
1. What is the
2. What is the free cash flow in year 2?
3. What is the free cash flow in year 3?
4. What is the
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