Check my work In five years Kent Duncan will retire. He is exploring the possibi
ID: 2591479 • Letter: C
Question
Check my work In five years Kent Duncan will retire. He is exploring the possibility of opening a self-ervice car wash. The in the free time he has available from his regular occupation, and it Duncan determined the following could be closed easily when he retires After careful study. Mr a A building in which a car wash could be installed is available under a five-year lease at a cost of $3,400 per month b. Purchase and installation costs of equipment would total $315,000 In five years the equipment could be sold for about 10% of its ped c. An investment of an additional $2,000 would be required to cover working capital needs for cleaning supplies, change funds and d. Both a wash and a vacuum service would be offered. Each customer would pay $154 for a wash and $ 85 for access to a vacuum e. The only variable costs associated with the operation would be 75 cents per wash for water and 10 cents per use of the vacuum for original cost. so forth. After five years, this working capital would be released for investment elsewhere cleaner electricity rences f. In addition to rent, monthly costs of operation would be: cleaning. $1,900, insurance, $75, and maintenance. $1675 g Gross receipts from the wash would be about $2,002 per week According to the experience of other car washes, 60% of the customersusing 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 138-1 and Exhibit 139-2 to determine the appropriate discount factorts using tables Required 1 Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation. 2-a. Determine the net present value using the net present value method of investment analysis 2-b Would you advise Mr. Duncan to open the car wash? Complete this question by entering your answers in the tabs below Req 1 Req 2A Req 28 Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash recets from its operation.Explanation / Answer
1.
2a. NPV = -$136302.57
2b. No, Mr. Ducan should not go ahead with the investment as the NPV is negative.
Particulars Amount Total Auto wash cash receipts $ 1,04,104 vaccum cash receipts $ 34,476 Total cash receipts $ 1,38,580 Less: cash disbursements Water $ 5,070 Electrcity $ 4,056 Rent $ 40,800 Cleaning $ 22,800 Insurance $ 900 Maintenance $ 20,100 Total cash disburements $ 93,726 Annual net cash flow from operations $ 44,854