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

Year 0Year 1Year 2Year 3
Revenues400,000400,000400,000
-Cost of Goods Sold-180,000-180,000-180,000
-Depreciation-100,000-100,000-100,000
=EBIT120,000120,000120,000
-Taxes (35%)-42,000-42,000-42,000
=Unlevered net income78,00078,00078,000
+Depreciation100,000100,000100,000
-Additions to Net Working Capital-20,000-20,000-20,000
-Capital Expenditures-300,000
=Free Cash Flow158,000158,000158,000


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 0Year 1Year 2Year 3
MACRS
Depreciation Rate33.33%44.45%14.81%7.41%


▸ $9,083

▸ $8,342

▸ $10,112

▸ $25,912
Textbook 
Fundamentals of Corporate Finance
Edition: 2nd
Authors:
Read 178 times
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Answer verified by a subject expert
wrote...
Posts: 210
2 weeks ago
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$9,083
1
Related Topics
wrote...
2 weeks ago
Use the table for the question(s) below.

Year 0Year 1Year 2Year 3
Revenues400,000400,000400,000
-Cost of Goods Sold-180,000-180,000-180,000
-Depreciation-100,000-100,000-100,000
=EBIT120,000120,000120,000
-Taxes (35%)-42,000-42,000-42,000
=Unlevered net income78,00078,00078,000
+Depreciation100,000100,000100,000
-Additions to Net Working Capital-20,000-20,000-20,000
-Capital Expenditures-300,000
=Free Cash Flow158,000158,000158,000


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 0Year 1Year 2Year 3
Revenues400,000400,000400,000
-Cost of Goods Sold-180,000-180,000-180,000
-Depreciation-100,000-100,000-100,000
=EBIT120,000120,000120,000
-Taxes (35%)-42,000-42,000-42,000
=Unlevered net income78,00078,00078,000
+Depreciation100,000100,000100,000
-Additions to Net Working Capital-20,000-20,000-20,000
-Capital Expenditures-300,000
=Free Cash Flow158,000158,000158,000


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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