MOST DIFFICULT You want to examine building out a new business: Holy Water Car Wash You first need to buy and improve the land. The land will cost $100,000, but it needs sewer and electric set up ($50,000) plus needs to be leveled and covered in asphalt ($25,000). Then, you need to install the washing equipment, which isn't cheap: it will cost $200,000. It will process a maximum of 12,000 cars per year. You will depreciate this new equipment straight-line over 10 years to zero. You forecast that the number of washes sold in Year 1 would be 7,500, and that number would increase 20% per year (until it reaches maximum machine capacity). You will sell washes at $10 each every year. Variable Expenses of the business are the per-wash costs of soap ($1 per wash), electricity ($1 per wash), and water (51 per wash). Fixed Expenses of the business are the two wash attendants who each make $20,000 per year in salary & benefits. Plus, insurance ($5,000) and basic utilities ($5,000). You want to model out for 5 years. Your tax rate is 35%. You have other businesses, so if you have a loss in any year, you will have the benefit of any tax credits In Year 5, you will sell the car wash and the sale price will be 5 times Year 5 Net Sales Revenue. Year 1 Year 0 Item Year 2 Year 3 Year 4 Year 5 # of units sold 7,500 9,000 10,800 120000 12,000 Sale Price per unit $10 $10 $10 $10 $10 COSE Per Unit $3 03 $3 $3 Net Sales Revenue 52,500 3,000 15,600 84.000 84,000 Less: other Operating exp. (21000) (2.000) (2.000)(2.000) (2.000) Less: Depreciation (20,000) (20,000) (20.000) (20.000) (20.00) 30/500 41,000 53,000 62000 62.000 Less Implied Taxes (10,275) (14,350) (18.760) (21,700) (21,700) plus: Depreciation 20.000 20.000 20.000 20,000 20,000 1 - A Net operating working capital $0 $0 $0 $0 $0 $0 +/- Anet operating IT capital (375,000 $0 $0 $0 (375,000) 39 825 H, 090 54,840 10,300 601300 Question 17 18 21 EBIT Free Cash Flow 19 20 22