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A Garage Is Installing a New "Bubble-Wash" Car Wash

question 40

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 Year 0  Year 1  Year 2  Year 3  Year 4  Revenues 120,000400,000400,000300,000 Costs of Goods Sold 60,000200,000200,000150,000textGrossProfit60,000200,000200,000150,000 Selling, General and Admin 6,0006,0006,0006,000 Depreciation 70,00070,00070,00070,000 EBIT 16,000124,000124,00074,000 Income tax(30%) 4,80037,20037,20022,200 Incremental Earnings 11,20086,80086,80051,800 Capital Purchases 280,000 Changes to NWC 5,0005,0005,0005,000\begin{array}{lrrrr}&\text { Year 0 } &\text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Year 4 } \\\text { Revenues }&&120,000 & 400,000 & 400,000 & 300,000\\\text { Costs of Goods Sold } && -60,000 & -200,000 & -200,000 & -150,000\\\\text { Gross Profit } && 60,000 & 200,000 & 200,000 & 150,000 \\\text { Selling, General and Admin } && -6,000 & -6,000 & -6,000 & -6,000 \\\text { Depreciation } && -70,000 & -70,000 & -70,000 & -70,000\\\hline \text { EBIT } && -16,000 & 124,000 & 124,000 & 74,000 \\\text { Income } \operatorname{tax}(30 \%) & &4,800 & -37,200 & -37,200 & -22,200 \\\hline \text { Incremental Earnings } && -11,200 & 86,800 & 86,800 & 51,800\\\\\text { Capital Purchases } &-280,000\\\text { Changes to NWC }&&-5,000 &-5,000 &-5,000 &-5,000\\\end{array} A garage is installing a new "bubble-wash" car wash. 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. If the cost of capital is 10%, what is the net present value (NPV) of this project?

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Definitions:

iPad

A line of tablet computers designed and marketed by Apple Inc., known for its touch screen interface and wide range of applications.

Market Share

The percentage of total sales or revenue that a company or product commands in a particular market or industry.

Product Life Cycle

The stages a product goes through from development and introduction to the market, to growth, maturity, and eventually decline.

Broaden Distribution

The expansion of a product's availability across a wider range of outlets or geographical areas to increase market reach and customer access.

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