Question
In: Finance
Intro The local franchise of Jiffy Lube is thinking of buying a new lift for $40,000...
Intro
The local franchise of Jiffy Lube is thinking of buying a new
lift for $40,000 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 12%. The
company has a tax rate of 21%.
Year 1 Year 2 Year 3
Cost savings 70,000 77,000 92,400
Depreciation 13,333 13,333 13,333
EBIT 56,667 63,667 79,067
Taxes (21%)
Net income
Depreciation
FCF
Attempt 1/1 for 10 pts.
Part 1
What is the free cash flow in year 1?
Submit
Attempt 1/1 for 10 pts.
Part 2
What is the free cash flow in year 2?
Submit
Attempt 1/1 for 10 pts.
Part 3
What is the free cash flow in year 3?
Submit
Attempt 1/1 for 10 pts.
Part 4
What is the NPV of this project?
Solutions
Expert Solution
Note - Total Cash Flow is also known as Free Cash Flow
Free Cash Flow = Net Income + Depreciation + Cash flow from the sale of asset (if any)
NPV = PV of Cash Inflows - PV of Cash Outflows
NPV = 156,550.54 - 40,000
NPV = $116,550.54
jeff jeffy answered 2 years agoRelated Solutions
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