points

A building in which a car wash could be installed is avallable under a five$-$year lease at a cost of $$3,700$ per month.

Purchase and installation costs of equipment would total $$174,000.$ In five years the equipment could be sold for about $10\%$ of its

original cost.

An investment of an additional $$4,000$ would be required to cover working capital needs for cleaning supples, change funds, and

so forth. After five years, this working capital would be released for investment elsewhere.

Both a wash and a vacuum service would be offered with a wash costing $$1\mathrm{.}52$ and the vacuum costing $$0\mathrm{.}85$ per use.

The only varlable costs assoclated with the operation would be $7\mathrm{.}5$ cents per wash for water and $10$ cents per use of the vacuum

for electricity.

In addition to rent, monthly costs of operation would be: cleaning, $$2,200$; insurance, $$75$; and maintenance, $$1,685.$

Gross recelpts from the wash would be about $$2,432$ per week. According to the experlence of other car washes, $60\%$ 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.

Required:

Assuming that the car wash will be open $52$ weeks a year, compute the expected annual net cash recelpts from its operation.

$2-$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 the final answers to the nearest whole dollar.$)$

$2-$b$.$ Would you advise Mr$.$ Duncan to open the car wash?

Yes

No