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Author Question: Use the table for the question(s) below.Year 0Year 1Year 2Year 3Revenues400,000400,000400,000-Cost ... (Read 1037 times)

jayhills49

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Use the table for the question(s) below.

Year 0Year 1Year 2Year 3
Revenues400,000400,000400,000
-Cost of Goods Sold-180,000-180,000-180,000
-Depreciation-100,000-100,000-100,000
=EBIT120,000120,000120,000
-Taxes (35%)-42,000-42,000-42,000
=Unlevered net income78,00078,00078,000
+Depreciation100,000100,000100,000
-Additions to Net Working Capital-20,000-20,000-20,000
-Capital Expenditures-300,000
=Free Cash Flow158,000158,000158,000


Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. Visby learns that a competitor is thinking of offering similar services, thus reducing Visby's sales. By how much could sales fall before the net present value (NPV) was zero, given that the cost of capital is 10%, and that cost of goods sold is 45% of revenues?
◦ by 18%
◦ by 24%
◦ by 26%
◦ by 12%


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Marked as best answer by jayhills49 on Jul 9, 2019

spencer.martell

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