Cindy Justus is the managing director of the Wichita Day Care Center. Wichita is
ID: 2490239 • Letter: C
Question
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 $25,920 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 $215 weekly, and the facility would operate 52 weeks of the year. Staffing the nursery would require two full-time specialists and five part-time assistants at an annual cost of $100,200. Food, diapers, and other miscellaneous supplies are expected to total $12,600 annually.
Collapse question part
(a)
Determine annual net income and net cash flow for the new nursery.
Annual Net Income $
Annual Cash Flow $
Explanation / Answer
a. Annual Net Income and annual cash flow
$ Revenue 12 infants x $215 per week x 52 weeks 134160 - Depreciation 25920/5 -5184 - Staff cost -100200 - Supplies cost -12600 Net Income 16176 + Depreciation 5184 Cash flow 21360