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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 16%. The company has a tax rate of 21%.
Year 1 | Year 2 | Year 3 | |
Cost savings | 20,000 | 22,000 | 26,400 |
Depreciation | 16,667 | 16,667 | 16,667 |
EBIT | 3,333 | 5,333 | 9,733 |
Taxes (21%) | |||
Net income | |||
Depreciation | |||
FCF part 1: What is the free cash flow in year 1? part 2: What is the free cash flow in year 2? part 3: What is the free cash flow in year 3? part 4: What is the NPV of this project? |
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