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?

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Attempt 1/1 for 10 pts.

Part 2

What is the free cash flow in year 2?

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Attempt 1/1 for 10 pts.

Part 3

What is the free cash flow in year 3?

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Attempt 1/1 for 10 pts.

Part 4

What is the NPV of this project?