The local franchise of Jiffy Lube is thinking of buying a new lift for $90,000 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 100,000 110,000 132,000 Depreciation 30,000 30,000 30,000 EBIT 70,000 80,000 102,000 Taxes (21%) Net income Depreciation FCF 1. What is the free cash flow in year 1? 2. What is the free cash flow in year 2? 3. What is the free cash flow in year 3? 4. What is the NPV of this project?
The local franchise of Jiffy Lube is thinking of buying a new lift for $90,000 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 100,000 110,000 132,000 Depreciation 30,000 30,000 30,000 EBIT 70,000 80,000 102,000 Taxes (21%) Net income Depreciation FCF 1. What is the free cash flow in year 1? 2. What is the free cash flow in year 2? 3. What is the free cash flow in year 3? 4. What is the NPV of this project?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 14P
Related questions
Question
The local franchise of Jiffy Lube is thinking of buying a new lift for $90,000 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
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 | 100,000 | 110,000 | 132,000 |
| Depreciation | 30,000 | 30,000 | 30,000 |
| EBIT | 70,000 | 80,000 | 102,000 |
| Taxes (21%) | |||
| Net income | |||
| Depreciation | |||
| FCF |
1. What is the
2. What is the free cash flow in year 2?
3. What is the free cash flow in year 3?
4. What is the
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
