Florida Car Wash is considering a new project whose data are shown below. The equipment...
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| Florida Car Wash is considering a new project whose data are shown below. The equipment to be used has a 3-year tax life, would be depreciated on a straight-line basis over the projects 3-year life, and would have a zero salvage value after Year 3. No new working capital would be required. Revenues and other operating costs will be constant over the projects life, and this is just one of the firms many projects, so any losses on it can be used to offset profits in other units. If the number of cars washed declined by 40% from the expected level, by how much would the projects NPV decline? (Hint: Note that cash flows are constant at the Year 1 level, whatever that level is.)
WACC 10.0% Net investment cost (depreciable basis) $60,000 Number of cars washed 2,800 Average price per car $25.00 Fixed op. cost (excl. deprec.) $10,000 Variable op. cost/unit (i.e., VC per car washed) $5.375 Annual depreciation $20,000 Tax rate 35.0% | |||||||||||
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