Question
The local franchise of Jiffy Lube is thinking of buying a new lift for $50,000 that would make it easier to access the oil filter
The local franchise of Jiffy Lube is thinking of buying a new lift for $50,000 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 13%. The company has a tax rate of 21%.
| Year 1 | Year 2 | Year 3 | |
| Cost savings | 80,000 | 88,000 | 105,600 |
| Depreciation | 16,667 | 16,667 | 16,667 |
| EBIT | 63,333 | 71,333 | 88,933 |
| Taxes (21%) | |||
| Net income | |||
| Depreciation | |||
| FCF |
What is the free cash flow in year 1?
What is the free cash flow in year 2?
What is the free cash flow in year 3?
What is the NPV of this project?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
The Legal Environment Today Summarized Case Edition
Authors: Roger LeRoy Miller
8th Edition
130526276X, 978-1305279407, 1305279409, 978-1305704930, 1305704932, 978-1305262768
