A 24-hour convenience store chain is considering going into the laundry business. Several investment choices have been considered and the senior management has decided that it would start with just one shop located in a large housing area. The following information were gathered:

1. Laundry equipment such as washers, dryers, and other equipment needed to open the laundry shop would cost RM200,000. It is determined that a working capital of RM9,000 would be required to purchase and keep inventories of washing powers, detergents, bleaches, and other related items. These inventories of washing powders, detergents, bleaches and the related items would be sold to customers at cost.

After six years, the working capital would be recovered.

2. The laundry shop would charge RM4.00 per use for the washers and RM2.00 per use for the dryers. The laundry shop expects to gross RM2,900 each week from the washers and

RM1,800 each week from the dryers.

3. The only variable costs would be 10 sens per use for water and electricity for the washers and 20 sens per use for electricity for the dryers.
4. Fixed costs would be RM5,000 per month for rent, RM2,500 per month for cleaning, and RM2,200 per month for maintenance, insurance, and other items.
5. The equipment would have a 11% disposal value in six years.
6. The company’s policy is that any investment should give a 12% return.

Required:

1. Calculate the average weekly number of users for the washers and the dryers.
2. Assuming that the laundry shop would be open 48 weeks a year, compute the expected annual net cash receipts from its operation. 
3. Show computations using the net present value method of investment analysis.

Answer rating: 100% (QA)

1 Average weekly use of the washers and dryers Washers GROSS AMOUNT DIVIDED BY AMOUNT PER USE NUMBER ... View the full answer