FIN 534 RANK Change The World /fin534rank.com FIN 534 RANK Change The World /fin534rank.com | страница 110

5. Florida Car Wash is considering a new project whose data are shown
below. The equipment to be used has a 3-year tax life, would be
depreciated on a straight-line basis over the project’s 3-year life, and
would have a zero salvage value after Year 3. No new working capital
would be required. Revenues and other operating costs will be constant
over the project’s life, and this is just one of the firm’s many projects, so
any losses on it can be used to offset profits in other units. If the number
of cars washed declined by 40% from the expected level, by how much
would the project’s NPV decline? (Hint: Note that cash flows are
constant at the Year 1 level, whatever that level is.)
WACC 10.0%
Net investment cost (depreciable basis) $60,000
Number of cars washed 2,800
Average price per car $25.00
Fixed op. cost (excl. deprec.) $10,000
Variable op. cost/unit (i.e., VC per car washed) $5.375
Annual depreciation $20,000
Tax rate 35.0%
a. $28,939
b. $30,462