In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could b
e managed in the free time he has available from his regular occupation, and it could be closed easily when he retires. After careful study, Mr. Duncan has determined the following: a. A building in which a car wash could be installed is available under a five-year lease at a cost of $1,700 per month.b. Purchase and installation costs of equipment would total $200,000. In five years the equipment could be sold for about 10% of its original cost.c. An investment of an additional $2,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. After five years, this working capital would be released for investment elsewhere.d. Both a wash and a vacuum service would be offered with a wash costing $2.00 and the vacuum costing $1.00 per use.e. The only variable costs associated with the operation would be 20 cents per wash for water and 10 cents per use of the vacuum for electricity.f. In addition to rent, monthly costs of operation would be: cleaning, $450; insurance, $75; and maintenance, $500.e. Gross receipts from the wash would be about $1,350 per week. According to the experience of other car washes, 60% of the customers using the wash would also use the vacuum.
Required:1. Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation.Auto wash cash receipts.................Vacuum cash receipts.............................TOTAL cash receipts.....................Less cash disbursements:Water............Electricity.......................Rent......................Cleaning.....................Insurance...........................Maintenance....................TOTAL cash disbursements..........Annual net cash flow from operations..............................................
2-a. Determine the net present value using the net present value method of investment analysis. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)
Required:1. Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation.Auto wash cash receipts.................Vacuum cash receipts.............................TOTAL cash receipts.....................Less cash disbursements:Water............Electricity.......................Rent......................Cleaning.....................Insurance...........................Maintenance....................TOTAL cash disbursements..........Annual net cash flow from operations..............................................
2-a. Determine the net present value using the net present value method of investment analysis. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)
1 answer:
Answer:
1. $49,434 (Net cash inflow from operation)
2a. $94580 (Net present value)
2b. The business should not open
Explanation:
<em>check the attached file for formatted tables</em>
Use the information of cash receipts and various cash expenses prepare the schedule of annual cash flow.
1. Prepare the schedule of annual cash flow using MS-Excel as below:
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