Cindy Justus is the managing director of the Wichita Day Care Center. Wichita is
ID: 2493760 • 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 $26,690 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 $216 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 $101,400. Food, diapers, and other miscellaneous supplies are expected to total $12,400 annually.
(a) Determine annual net income and net cash flow for the new nursery
Annual Net Income $___________ Annual Cash Flow $___________Explanation / Answer
investment required 26,690 useful life 5 years depreciation 5,338 infants 12 charge on weekly basis 216 annual income 134,784 12*216*52 Staffing salary 101,400 fooFood, diapers 12,400 Depreciation 5,338 Total cost 119,138 Annual Net income 15,646 ADD: Depreciation 5,338 Annual Cash Flow 20,984