Mike's Car Wash is considering a new project, which requires an initial investment of $60,000. The equipment to be used has a 3-year tax life, would be depreciated on a straight-line basis over its 3-year life to zero salvage value. The equipment can be sold for $10,000 at the end of year 3. With the new equipment, the company is expected to wash 2,800 cars per year for all 3 years. The price per car will be $25 for the first year, and growing at a constant rate of 5% due to inflation. The variable cost is 20% of the revenue, and the fixed cost is $10,000 each year. Suppose Mike's Car Wash allows its customers to pay their bills with an average 1-month delay, and its inventories are 15% of next years revenue. If the opportunity cost of capital is 9%, corporate tax rate is 35%, and capital gain tax is 15%.

a. What is the projects NPV? Should you accept the project based on its NPV?

b. What is the projects IRR? Will your answer change based on the IRR method?

c. How much would the projects NPV change if the number of cars washed reduces to half?

	Year 0	Year 1	Year 2	Year 3
Cost for new machine
Working Capital
Change in Working Capital
Revenues
Expense
Depre
Pretax Profit
Taxes
Profit
Net-of-tax Proceeds
Cash Flows
Discounted Cash Flows