Question
The local franchise of Jiffy Lube is thinking of buying a new lift for $70,000 that would make it easier to access the oil filter
The local franchise of Jiffy Lube is thinking of buying a new lift for $70,000 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 14%. The company has a tax rate of 21%. Year 1 Year 2 Year 3 Cost savings 70,000 77,000 92,400 Depreciation 23,333 23,333 23,333 EBIT 46,667 53,667 69,067 Taxes (21%) NOPAT Depreciation PCF A
What is the project cash flow in year 1, 2,and 3? What is the NPV of this project?
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