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1. The Awesome Automobile Corporation is contemplating the acquisition of an automatic car wash. The following information is relevant: The cost of the car wash

1. The Awesome Automobile Corporation is contemplating the acquisition of an automatic car wash. The following information is relevant:

The cost of the car wash is $195,000

The anticipated revenue from the car wash is $100,000 per year.

The useful life of the car wash is 10 years.

Annual operating costs are expected to be:

Salaries

$25,000

Utilities

9,600

Water usage

4,400

Supplies

11,000

Repairs/maintenance

10,000

The salvage value for the car wash is zero. The firm uses straight-line depreciation (annual depreciation equals $19,500). The companys cost of capital and hurdle rate are 10 percent. Ignore income taxes.

Required:

A.

Compute the net present value. (6 points)

B.

Compute internal rate of return (IRR). Should the project be accepted based on IRR? (6 points)

C.

Compute the payback period. (3 points)

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