Cindy Justus is the managing director of the Wichita Day Care Center. Wichita is currently set up as a full-time child care facility for children between the ages of 12 months and 6 years. Cindy is trying to determine whether the center should expand its facilities to incorporate a newborn care room for infants between the ages of 6 weeks and 12 months. The necessary space already exists. An investment of 525,940 would be needed, however, to purchase cribs, high chairs, etc. The equipment purchased for the room would have a 5-year useful life with zero salvage value.

The newborn nursery would be staffed to handle 12 infants on a full-time basis. The parents of each infant would be charged $213 weekly, and the facility would operate 52 weeks of the year. Staffing the nursery would require two full-time specialists and Eye part-time assistants at an annual cost of $102,100. Food, diapers, and other miscellaneous supplies are expected to total $12,000 annually.

1. Determine annual net income and net cash flow for the new nursery.

2. Compute (1) the annual rate of return and (2) the cash payback period for the new nursery. (Round answers to 2 decimal place, e.g. 23,70% or 6.50.)

Answer rating: 100% (QA)

1 Computation o... View the full answer