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...


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 1Year 2Year 3
Cost savings100,000110,000132,000
Depreciation30,00030,00030,000
EBIT70,00080,000102,000
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?



Jun 08, 2022
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