FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 113

Sales revenues, each year $65,500
Operating costs (excl. deprec.), each year $25,000
Tax rate 35.0%
a. $15,740
b. $16,569
c. $17,441
d. $18,359
e. $19,325
5. Florida Car Wash is considering a new project whose data are shown
below. The equipment to be used has a 3-year tax life, would be
depreciated on a straight-line basis over the project’s 3-year life, and
would have a zero salvage value after Year 3. No new working capital
would be required. Revenues and other operating costs will be constant
over the project’s life, and this is just one of the firm’s many projects, so
any losses on it can be used to offset profits in other units. If the number
of cars washed declined by 40% from the expected level, by how much
would the project’s NPV decline? (Hint: Note that cash flows are
constant at the Year 1 level, whatever that level is.)
WACC 10.0%