Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for...

 

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Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years until he retires. He has gathered the following information: a. A building for the car wash is available under a five-year lease for $3,700 per month. b. The car wash equipment costs $255,000 and could be sold in five years for 10% of its original cost. c. The car wash requires a working capital investment of $4,000 for cleaning supplies, change funds, and so forth. After five years, this working capital would be released for investment elsewhere. d. Each customer would pay $1.52 for a wash and $0.85 for access to a vacuum cleaner. e. The only variable costs are 7.5 cents per wash (for water) and 10 cents per use of the vacuum. f. Additional monthly operating costs include cleaning, $2,200; insurance, $75; and maintenance, $1,685. g. Gross receipts from the wash would be $2,432 per week and 60% of the customers using the wash would also use the vacuum. Mr. Duncan will not open the car wash unless it provides at least a 12% return. Click here to view Exhibit 14B-1 and Exhibit 14B-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 inflows from its operation. 2-a. What is the net present value of the investment in the car wash? 2-b. Should Mr. Duncan open the car wash? Complete this question by entering your answers in the tabs below. Required 1 Required 2A Required 2B Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash inflows 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 receipts from operations Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years until he retires. He has gathered the following information: a. A building for the car wash is available under a five-year lease for $3,700 per month. b. The car wash equipment costs $255,000 and could be sold in five years for 10% of its original cost. c. The car wash requires a working capital investment of $4,000 for cleaning supplies, change funds, and so forth. After five years, this working capital would be released for investment elsewhere. d. Each customer would pay $1.52 for a wash and $0.85 for access to a vacuum cleaner. e. The only variable costs are 7.5 cents per wash (for water) and 10 cents per use of the vacuum. f. Additional monthly operating costs include cleaning, $2,200; insurance, $75; and maintenance, $1,685. g. Gross receipts from the wash would be $2,432 per week and 60% of the customers using the wash would also use the vacuum. Mr. Duncan will not open the car wash unless it provides at least a 12% return. Click here to view Exhibit 14B-1 and Exhibit 14B-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 inflows from its operation. 2-a. What is the net present value of the investment in the car wash? 2-b. Should Mr. Duncan open the car wash? Complete this question by entering your answers in the tabs below. Required 1 Required 2A Required 2B Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash inflows 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 receipts from operations