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Florida Car Wash is considering a new project whose data is shown below

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Question;17. Florida Car Wash is considering a new project whose data is shown below. The equipment to be used would be depreciated by the straight-line method over the project's 3 year life and would have a zerosalvage value after Year 3. No new working capital would be required. Revenue and other operating costswill be constant over the project's life, and this is just one of the firm's many projects, so any losses on itcan be used to offset profits in other units. If the number of cars washed declined by 40% from theexpected level, by how much would the project's NPV decline?WACC 15.00%Net investment cost (depreciable basis) $70,000.00Number of cars washed 3,500Average price per car $25.00Fixed cash operating costs (excluding depreciation) $12,000.00Variable operating costs/unit (i.e., VC per car washed) $5.5000Marginal tax rate 34.00% 18. Refer to problem 17. Assume that Florida Car Wash's new project now requires $20,000 in newworking capital at the start of the project, and assume that the new working capital will be recoveredat the end of the project. By how much will the project's NPV change if the number of cars washed is at the expected level?

 

Paper#44034 | Written in 18-Jul-2015

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