Frank White will retire in twelve years. He wants to open some type of small business

operation that can be managed in the free time he has available from his regular occupation,

but that can be closed easily when he retires. He his considering several investment alternatives,

one of which is to open a laundromat.

After careful study, Mr. White has determined the following:

a. Washer, dryers, and other equipment needed to open the laundromat would cost $284,000.

b. The laundromat would charge $1.75 per use of the washers and $1.00 per use of the dryers.

Mr. White expects the laundromat to gross $2,100 each week from the washers and $1,500

each week from the dryers. He expects the charge for washers to increase $.25 every

two years and the fee for operating the dryers to increase $.15 every two years.

c. The only variable costs in the laudromat would be 10 cents per use for water and electricity

for the washers and 14 cents per use for gas and electricity for the dryers. He anticipates

that these costs will increase by 10% annually.

d. Fixed costs would be $4,000 per month for rent, $1,700 per month for cleaning,

and $1,975 per month for maintenance, insurance, and other items. He anticiptes that

these costs will increase by 8% annually.

e. The equipment would have a 10% disposal value in 12 years.

Mr. White will not open the laundromat unless it provides at least a 12% return, since this

is the amount that he could earn from an alternative investment opportunity.

Required:

(Ignore income taxes.)

1. Name the techniques, and their definifinitions, you will use for this analysis.

2. Assuming that the laundromat would be open 52 weeks a year, compute the expected

net annual cash receipts from its operation (gross cash receipts less cash disbursements).

Perform the analyses you named in 1. above.

3. Would you advise Mr. White to open the laundromat? Round all dollar amounts to the

nearest whole dollar.