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The local franchise of Jiffy Lube is thinking of buying a new lift for $90,000 that...

The local franchise of Jiffy Lube is thinking of buying a new lift for $90,000 that would make it easier to access the oil filter in customers' cars and save labor. The savings would increase over the project's 3-year life, in line with the projected growth of the business. The machine is to be linearly depreciated to zero and will have no resale value after 3 years.

The appropriate cost of capital for this project is 11%. The company has a tax rate of 21%.

Year 1 Year 2 Year 3
Cost savings 50,000 55,000 66,000
Depreciation 30,000 30,000 30,000
EBIT 20,000 25,000 36,000
Taxes (21%)
Net income
Depreciation
FCF

Questions: What is the free cash flow in year 1? What is the free cash flow in year 2? What is the free cash flow in year 3? What is the NPV of this project?

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