In five years, Kent Duncan will retire. He is exploring the car wash could be ma
ID: 2599472 • Letter: I
Question
In five years, Kent Duncan will retire. He is exploring the car wash could be managed in the free time he has available from his regular occupation, and it could be closed easily when he retires. After careful study, Mr. Duncan has determined the following of opening a self-service car wash. The in which a car wash could be installed is available under a five-year lease at a cost of $4,900 a. A building i b. Purchase and installation costs of equipment would total $145,000. In five years the equipment could be c. An investment of an additional $5,000 would be required to cover working capital needs for cleaning sold for about 10% of its original cost. supplies, change funds, and so forth. After five years, this working capital would be released for d. Both a wash and a vacuum service would be offered with a wash costing $1.17 and the vacuum costing e. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 f. In addition to rent, monthly costs of operation would be: cleaning, $3,400; insurance, $55; and e. Gross receipts from the wash would be about $3,276 per week. According to the experience of other car investment elsewhere. $.60 per use cents per use of the vacuum for electricity. maintenance, $1,925 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. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables .Explanation / Answer
1 Collection Per Week 3276 Per Month Months Total Total Weeks 52 Water 7665.84 Total Collections 170352 Electricity 17035.2 Auto Car Wash Receipts(60%) 102211 Rent 4900 12 58800 Vaccum Car Wash Receipts(40%) 68141 Cleaning 3400 12 40800 Insurance 55 12 660 Auto Car Wash Receipts 102211 Maintainance 1925 12 23100 Vaccum Car Wash Receipts 68141 Total Cash Receipts 170352 Cash Disbursements: Auto Car Wash Receipts: 1.17 Water 7666 Water Cost 7.50% Electricity 17035 Vaccum Cost 10% Rent 58800 Total Cost for Autocar 17.50% Cleaning 40800 Insurance 660 Total Revenue of Auto Car 102211.2 Maintainance 23100 Cost for Water 7665.84 Total Cash Disbursement 148061 Cost for Electricity 10221.12 Annual Cash Flows from operations 22291 Vaccum Car Wash Receipts 0.60 Water Cost 0.00% Vaccum Cost 10% Total Cost for Vaccum 10.00% Total Revenue of Vaccum 68140.8 Cost for Electricity 6814.08 2A Particulars Now 1 2 3 4 5 Purchase of Equipment -145000 Working Capital -5000 Annual Cash Inflow 22291 22291 22291 22291 22291 Working Capital Released 5000 Salavage Value 14500 Total Cash Flows -150000 22291 22291 22291 22291 41791 Discount Factor @ 12% 1 0.893 0.797 0.712 0.636 0.567 Present Value -150000 19,903 17,770 15,866 14,166 23,713 Net Present Value -58581.3 2B Mr Duncun should not open car wash because it is resulting in negative cashflows!