Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years until he retires. He has gathered the following information: a. A building in which a car wash could be installed is available under a five-year lease at a cost of $5,600 per month. b. Purchase and installation costs of equipment would total $320,000. In five years the equipment could be sold for about 6% of its original cost. c. An investment of an additional $8,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. After five years, this working capital would be released for investment elsewhere. d. Both a wash and a vacuum service would be offered. Each customer would pay $1.30 for a wash and $.60 for access to a vacuum cleaner. e. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 cents per use of the vacuum for electricity. f. In addition to rent, monthly costs of operation would be: cleaning, $2,900; insurance, $155; and maintenance, $1,775. g. Gross receipts from the wash would be about $2,990 per week. According to the experience 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 8% return. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) 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. What is the net present value of the investment in the car wash? 2-b. Would you advise Mr. Duncan to open the car wash? Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years until he retires. He has gathered the following information: a. A building in which a car wash could be installed is available under a five-year lease at a cost of $5,600 per month. b. Purchase and installation costs of equipment would total $320,000. In five years the equipment could be sold for about 6% of its original cost. c. An investment of an additional $8,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. After five years, this working capital would be released for investment elsewhere. d. Both a wash and a vacuum service would be offered. Each customer would pay $1.30 for a wash and $.60 for access to a vacuum cleaner. e. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 cents per use of the vacuum for electricity. f. In addition to rent, monthly costs of operation would be: cleaning, $2,900; insurance, $155; and maintenance, $1,775. g. Gross receipts from the wash would be about $2,990 per week. According to the experience 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 8% return. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) 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. What is the net present value of the investment in the car wash? 2-b. Would you advise Mr. Duncan to open the car wash?
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
Choose a company or product that you have been noticing or admiring. Develop a plan to advertise this product that involves the United States and at least one other country, and three forms of media....
-
Visit the IT department at your school or at a local business and determine whether the organization uses file-oriented systems, DBMSs, or both. Write a brief memo with your conclusions.
-
What types of information need to be disclosed to offerees under Reg D?
-
Kingston Corp., a manufacturing company, uses the perpetual inventory method for all inventory accounts. Direct materials, direct labor, and applied overhead are recorded on cost sheets similar to...
-
The Chang Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However, the machine...
-
It is July 2 6 . A company has a portfolio of stocks worth $ 1 2 0 million. The beta of the portfolio is 1 . 4 . The company wants to use the December futures contract on a stock index to change the...
-
Explain the main differences between private and public sector entities and the implications for accounting and accountability.
-
Into what three broad categories may operational audits be classified?
-
If the current through a \(10-\Omega\) resistor is \(2.0 \mathrm{~A}\), how much energy is dissipated by the resistor in \(1.0 \mathrm{~h}\) ?
-
Why may the unit of measure be difficult to establish in an operational audit?
-
Describe operational auditing.
-
What two federal agencies publish auditing standards for audits of programs for federal financial assistance?
-
Jack Grey is the sole shareholder of Grey's Garden Tools Inc. He owns one class of common shares which have a value of $200,000. Jack is approaching retirement age and would like his two key...
-
Would you use the adjacency matrix structure or the adjacency list structure in each of the following cases? Justify your choice. a. The graph has 10,000 vertices and 20,000 edges, and it is...
-
Traditionally, accountants have been most involved with which portion of the HRM/payroll cycle? a. hiring b. payroll c. training d. performance evaluation
-
What is the formula for calculating equity per share?
-
Which of the following statements is true? a. Financial statements report the value of employee knowledge and skills. b. Turnover and absenteeism are costly. c. Outsourcing of HRM and payroll...
Study smarter with the SolutionInn App