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wrote...
Posts: 176
2 weeks ago
Use the table for the question(s) below.

 Year 0 Year 1 Year 2 Year 3
 Revenues 400,000 400,000 400,000
 -Cost of Goods Sold -180,000 -180,000 -180,000
 ​
 -Depreciation -100,000 -100,000 -100,000
 =EBIT 120,000 120,000 120,000
 ​
 -Taxes (35%) -42,000 -42,000 -42,000
 =Unlevered net income 78,000 78,000 78,000
 ​
 +Depreciation 100,000 100,000 100,000
 ​
 -Additions to Net Working Capital -20,000 -20,000 -20,000
 ​
 -Capital Expenditures -300,000
 =Free Cash Flow 158,000 158,000 158,000
 ​

Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. The depreciation schedule shown is for three-year, straight-line depreciation. By how much would the net present value (NPV) of this project be increased, if the cars were depreciated by the MACRS schedule shown below given that the cost of capital is 10%?
 Year 0 Year 1 Year 2 Year 3
MACRS
 Depreciation Rate 33.33% 44.45% 14.81% 7.41%

▸ $9,083 ▸$8,342

▸ $10,112 ▸$25,912
Textbook
 Fundamentals of Corporate Finance Edition: 2nd Authors: Berk, DeMarzo, Harford
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Answer verified by a subject expert
wrote...
Posts: 210
2 weeks ago
Related Topics
wrote...
2 weeks ago
Use the table for the question(s) below.

 Year 0 Year 1 Year 2 Year 3
 Revenues 400,000 400,000 400,000
 -Cost of Goods Sold -180,000 -180,000 -180,000
 ​
 -Depreciation -100,000 -100,000 -100,000
 =EBIT 120,000 120,000 120,000
 ​
 -Taxes (35%) -42,000 -42,000 -42,000
 =Unlevered net income 78,000 78,000 78,000
 ​
 +Depreciation 100,000 100,000 100,000
 ​
 -Additions to Net Working Capital -20,000 -20,000 -20,000
 ​
 -Capital Expenditures -300,000
 =Free Cash Flow 158,000 158,000 158,000
 ​

Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. By how much could the discount rate rise before the net present value (NPV) of this project is zero, given that it is currently 10%?

▸ by 22%

▸ by 17%

▸ by 27%%

▸ by 25%
wrote...
2 weeks ago
 by 17%
wrote...
2 weeks ago
 Brilliant
wrote...
2 weeks ago
Use the table for the question(s) below.

 Year 0 Year 1 Year 2 Year 3
 Revenues 400,000 400,000 400,000
 -Cost of Goods Sold -180,000 -180,000 -180,000
 ​
 -Depreciation -100,000 -100,000 -100,000
 =EBIT 120,000 120,000 120,000
 ​
 -Taxes (35%) -42,000 -42,000 -42,000
 =Unlevered net income 78,000 78,000 78,000
 ​
 +Depreciation 100,000 100,000 100,000
 ​
 -Additions to Net Working Capital -20,000 -20,000 -20,000
 ​
 -Capital Expenditures -300,000
 =Free Cash Flow 158,000 158,000 158,000
 ​

Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. Visby learns that a competitor is thinking of offering similar services, thus reducing Visby's sales. By how much could sales fall before the net present value (NPV) was zero, given that the cost of capital is 10%, and that cost of goods sold is 45% of revenues?

▸ by 18%

▸ by 24%

▸ by 26%

▸ by 12%
wrote...
2 weeks ago
 by 26%
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