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Hernando G. Hernando G.
wrote...
Posts: 440
4 years 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

Fundamentals of Corporate Finance


Edition: 2nd
Authors:
Read 302 times
6 Replies
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Answer verified by a subject expert
javiermorillajaviermorilla
wrote...
Posts: 393
4 years ago
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wrote...
4 years 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...
4 years ago
by 17%
wrote...
4 years ago
Brilliant
wrote...
4 years 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...
4 years ago
by 26%
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