In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 determined the following:
Mr. Duncan will not open the car wash unless it provides at least a 13% return.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
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 |
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Vacuum cash receipts |
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Total cash receipts |
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Less cash disbursements: |
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Water |
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Electricity |
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Rent |
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Cleaning |
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Insurance |
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Maintenance |
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Total cash disbursements |
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Annual net cash flow from operations |
2-a. Determine the net present value using the net present value method of investment analysis.
2-b. Would you advise Mr. Duncan to open the car wash?
Answer:
1.)
Auto wash cash receipts | 170,352 | |
Vaccum cash receipts | 52,416 | |
Total cash receipts | 222,768 | |
less: Cash disbursement | ||
Water | 10,920 | |
Electricity | 8,736 | |
Rent | 58,800 | |
Cleaning | 40,800 | |
Insurance | 660 | |
Maintainance | 23,100 | |
Total cash Disbursement | 143,016 | |
Annual net cash flow from operation | 79,752 |
Working
Auto Wash Cash Receipts = 3276*52= $ 170352
Vaccum Cash Receipts = 3276/1.17* 60% * 0.60* 52 = $ 52416
Water = 3276/1.17 * 0.075 * 52 = $ 10920
Electricity = 3276/1.17 * 60% *0.10 * 52 = $ 8736
2-a)
Now` | 1 | 2 | 3 | 4 | 5 | |
Purchase of Equipment | -300,000 | 0 | 0 | 0 | 0 | 0 |
Working Capital | -5,000 | 0 | 0 | 0 | 0 | 0 |
Annual Net Cash Inflow | 0 | 79752 | 79752 | 79752 | 79752 | 79752 |
Working Capital Realised | 0 | 0 | 0 | 0 | 0 | 5000 |
Salvage Value | 0 | 0 | 0 | 0 | 0 | 30000 |
Total Cash Flow | -305,000 | 79752 | 79752 | 79752 | 79752 | 114752 |
Discount Factor | 1 | 0.88496 | 0.78315 | 0.69305 | 0.61332 | 0.54276 |
Present Value | -305000 | 70577.33 | 62457.78 | 55272.12 | 48913.50 | 62282.80 |
Net Present Value | -5,496.47 | |||||
2-b) Yes
In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service...
In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 determined the following: A building in which a car wash could be installed is available under a five-year lease at a cost of $3,400 per month. Purchase and installation costs of...
In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 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 $4,200 per month. b. Purchase and installation...
In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 determined the following: A building in which a car wash could be installed is available under a five-year lease at a cost of $3,400 per month. Purchase and installation costs of...
five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 determined the following: A building in which a car wash could be installed is available under a five-year lease at a cost of $5,700 per month. Purchase and installation costs of equipment...
In five years. Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 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 $4,200 per month b. Purchase and installation...
In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 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 $5,800 per month. b. Purchase and installation...
In five years, Kent Duncan will retire. He is explorong the possibility of opening a self-service car wash. The car wash could be 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 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 $5,700 per month b. Purchase and installation...
In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 determined the following: 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.Purchase and installation costs of equipment would...
solution to just question 2 (a) please with explanations. thanks In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 determined the following: a. A building in which a car wash could be installed is available under a five-year lease at...
In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be 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 determined the following: A building in which a car wash could be installed is available under a five-year lease at a cost of $3,900 per month. Purchase and installation costs of...