Florida Car Wash Is Considering a New Project Whose Data

question 27

Multiple Choice

Florida Car Wash is considering a new project whose data are shown below.The equipment to be used has a 3-year tax life.Under the new tax law,the equipment is eligible for 100% bonus depreciation,so it will be fully depreciated at t = 0.At the end of the project's 3-year life,it would have zero salvage value.No change in net operating working capital (NOWC) would be required for the project.Revenues and 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 change? (Hint: Note that cash flows are constant at the Year 1 level,whatever that level is. ) Do not round the intermediate calculations and round the final answer to the nearest whole number. ​

• A) -$43,339
• B) -$33,804
• C) -$28,170
• D) -$46,199
• E) -$36,433

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Definitions:

Central Bank

An institution that manages a country's currency, money supply, and interest rates. Central banks also oversee the commercial banking system of their respective countries.

Sacrifice Ratio

The sacrifice ratio measures the cost of reducing inflation in terms of the percentage of GDP lost per each percentage point decrease in inflation.

Volcker Disinflation

A period during the early 1980s when the Federal Reserve, led by Chairman Paul Volcker, raised interest rates to historically high levels in order to combat high inflation.

Estimates

Approximations or educated guesses based on current trends and data.