A garage is installing a new bubble-wash car wash, which requires an initial investment of $280,000 in year 0. It will promote the car wash as a fun activity for the family and it is expected that the novelty of this approach will boost sales in the medium term. The garage plans on using an opportunity cost of capita of 10% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projections: Year 1 Year 2 Revenues 120 000 400 000 Cost of goods sold -66 000-206 000 Year 3 400 000 -206 000 Year 4 300 000 -156 000 Depreciation -70 000 -70 000 -70 000 -70 000 -EBIT -16 000 124 000 124 000 74 000 Taxes (30%) 4 800 -37 200 -37 200 -22 200 =Profit after tax -11 200 86 800 86 800 51 800 Changes in NOWC -5 000 -5000 -5.000 -5000 The net present value (NPV) for this project is closest to: O a. -$145,283 Ob. $76,607 Oc-$214,525 Od. $119,888

A garage is installing a new bubble-wash car wash, which requires an initial investment of $280,000 in year 0. It will promote the car wash as a fun activity for the family and it is expected that the novelty of this approach will boost sales in the medium term. The garage plans on using an opportunity cost of capita of 10% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projections: Year 1 Year 2 Revenues 120 000 400 000 Cost of goods sold -66 000-206 000 Year 3 400 000 -206 000 Year 4 300 000 -156 000 Depreciation -70 000 -70 000 -70 000 -70 000 -EBIT -16 000 124 000 124 000 74 000 Taxes (30%) 4 800 -37 200 -37 200 -22 200 =Profit after tax -11 200 86 800 86 800 51 800 Changes in NOWC -5 000 -5000 -5.000 -5000 The net present value (NPV) for this project is closest to: O a. -$145,283 Ob. $76,607 Oc-$214,525 Od. $119,888

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 21BEA

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A garage is installing a new 'bubble-wash' car wash, which requires an initial investment of $280,000 in year 0. It will promote the car wash as a fun activity for the family and it is expected that the novelty of this approach will boost sales in the medium term. The garage plans on using an opportunity cost of capital of 10% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projections: Year 1 Year 2 Revenues Costs of Goods Sold Gross Profit Selling, General and Admin Depreciation EBIT Income tax (30%) Profit after tax Changes in NOWC 120 000 -60 000 60 000 -6 000 -70 000 -16 000 4 800 -11 200 The net present value (NPV) for this project is closest to: a. $76,607 b. $119,888 c. -$145,283 d. -$214,525 -5,000 400 000 -200 000 200 000 -6 000 -70 000 124 000 -37 200 86 800 -5,000 Year 3 400 000 -200 000 200 000 -6 000 -70 000 124 000 -37 200 86 800 -5,000 Year 4 300 000 -150 000 150 000 -6 000 -70 000 74 000 -22 200 51 800 -5,000
A garage is installing a new 'bubble-wash' car wash, which requires an initial investment of $280,000 in year 0. It will promote the car wash as a fun activity for the family and it is expected that the novelty of this approach will boost sales in the medium term. The garage plans on using an opportunity cost of capital of 10% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projections: Year 1 Year 2 Year 3 Year 4 Revenues 120 000 400 000 400 000 300 000 -Cost of goods sold -66 000 -206 000 -206 000 -156 000 -Depreciation -70 000 -70 000 -70 000 -70 000 +EBIT -16 000 124 000 124 000 74 000 -Taxes (30%) 4 800 -37 200 -37 200 -22 200 =Profit after tax -11 200 86 800 86 800 51 800 Changes in NOWC -5 000 -5 000 -5 000 -5 000 The net present value (NPV) for this project is closest to: a. -$145,283 O b. $76,607 O c. -$214,525 ○ d. $119,888
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