Forecast Next 10 Years
Current carwashes (Year 0)	50,000
Annual growth carwashes	2.50%
Revenue per carwash base	$ 10.00
Variable Costs (Current)
Utilities (Elec/gas/water)	$ 0.70
Detergents/Chemicals	0.30
Maintenance costs	0.20
Site Labor	2.00
Total Variable Costs	$ 3.55
Fixed Costs (Current)
Owners' salary	$62,500
Daughter's salary	$47,500
Son's salary	$47,500
Insurance	$10,000
Operating costs	$25,000
Advertising	$16,000
Depreciation	-
Total Fixed Costs	$ 208,500

Investment/ Tax Information
Interest Rate	8.00%
Equipment Investment	$290,000
Useful life (years)	10
Salvage Value	0
Utilities Cost decrease per carwash	$ 0.15
Maintenance Cost decrease per carwash	$ 0.30
ChainStore's Offer (Current)	$1,825,000
After-Tax Gain on Sale (Current)*	$ 1,428,000
Sales Price in 10 years	$2,700,000
After-Tax Gain on Sale (after 10 years)*	$ 2,128,000
Long Term Capital Gains	20%
Corporate Income Tax Rate	21%

Balance Sheet
	Current	Year 10
Cash	$ 300,000	$ 1,595,324
Land	50,000	50,000
Building	65,000	65,000
Accumulated Depr.- Building	(65,000)	(65,000)
Equipment (Current)	500,000	790,000
Accumulated Depr.- Equip	(500,000)	(790,000)
Total Assets	$ 350,000	$ 1,645,324
Current Liabilities	$ 10,000	$ 10,000
Common Stock (Current)	50,000	50,000
Retained Earnings (Current)	290,000	1,585,324
Total Liabilities & Equity	$ 350,000	$ 1,645,324
Except cash, no changes in working are expected.

Calculate the net present value of after-tax cash flows after the upgrade. Use $2,168,000 for the amount the Johnsons will receive after-taxes from the sale of the business in 10 years if they choose to upgrade and continue operations. The check figure for net cash flows in Year 1 is $120,739 and $2,358,262 for year 10. Round answers to the nearest whole number. Year 0 would only include the changes made now.

7 8 9 10 2,168,000 0 0 0 0 14 0.5830 0.5400 0.5000 0.4630 2 Upgrade and Continue to Operate - Net Present Value of After Tax Cash Flows 3 0 1 2 3 4 5 6 4 Cash Inflows (Revenue) 0 5 After Tax Cash Received Sale of Business 0 6 Net Cash Inflows 1 8 Operating Expenses 0 9 Less Non-cash Expense 0 10 Income Tax Expense 11 Equipment Upgrade 0 0 0 0 0 0 12 Net Cash Outflows 13 Net Cash Flows 15 16 Discount Factors (Present Value of $1.00 at 8%) 1.00 0.9260 0.8570 0.7940 0.7350 0.6810 0.6300 18 Present Value 19 20 Net Present Value if Upgraded and sold in 10 Years 21 22 If Sold to Chain Store 23 Net book value of non-cash assets 24 Less current liabilities 25 Book value of business 26 27 Chain Store Offer 28 Less: current book value 29 Pre-tax gain on sale $ 30 Capital gains tax rate 31 Capital gains tax Taxed on pre-tax gain 32 Net cash flow from sale Sales price - taxes is after-tax net cash flow 33 34 Net Present Value 35 Continued Operations: 36 Net Present Value (Discounted Cash Flow) $ 37 38 Sale to Chain Store: 39 After Tax Cash From Sale Now $ 40 Retirement Savings (Cash Balance) 41 Outstanding Liabilities 42 Net Cash Flow From Sale 43 44 Net Cash Flow $ 7 8 9 10 2,168,000 0 0 0 0 14 0.5830 0.5400 0.5000 0.4630 2 Upgrade and Continue to Operate - Net Present Value of After Tax Cash Flows 3 0 1 2 3 4 5 6 4 Cash Inflows (Revenue) 0 5 After Tax Cash Received Sale of Business 0 6 Net Cash Inflows 1 8 Operating Expenses 0 9 Less Non-cash Expense 0 10 Income Tax Expense 11 Equipment Upgrade 0 0 0 0 0 0 12 Net Cash Outflows 13 Net Cash Flows 15 16 Discount Factors (Present Value of $1.00 at 8%) 1.00 0.9260 0.8570 0.7940 0.7350 0.6810 0.6300 18 Present Value 19 20 Net Present Value if Upgraded and sold in 10 Years 21 22 If Sold to Chain Store 23 Net book value of non-cash assets 24 Less current liabilities 25 Book value of business 26 27 Chain Store Offer 28 Less: current book value 29 Pre-tax gain on sale $ 30 Capital gains tax rate 31 Capital gains tax Taxed on pre-tax gain 32 Net cash flow from sale Sales price - taxes is after-tax net cash flow 33 34 Net Present Value 35 Continued Operations: 36 Net Present Value (Discounted Cash Flow) $ 37 38 Sale to Chain Store: 39 After Tax Cash From Sale Now $ 40 Retirement Savings (Cash Balance) 41 Outstanding Liabilities 42 Net Cash Flow From Sale 43 44 Net Cash Flow $