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 for the car wash is available under a five$-$year lease for $$5,300$ per month.

b$.$ The car wash equipment costs $$400,000$ and could be sold in five years for $10\%$ of its original cost.

c$.$ The car wash requires a working capital investment of $$9,000$ for cleaning supplies, change funds, and so

forth. After five years, this working capital would be released for investment elsewhere.

d$.$ Each customer would pay $$1\mathrm{.}25$ for a wash and $$0\mathrm{.}55$ for access to a vacuum cleaner.

e$.$ The only variable costs are $7\mathrm{.}5$ cents per wash $($for water$)$ and $10$ cents per use of the vacuum.

f$.$ Additional monthly operating costs include cleaning, $$3,800$; insurance, $$75$; and maintenance, $$1,895.$

g$.$ Gross receipts from the wash would be $$4,000$ per week and $60\%$ 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 $13\%$ return.

Click here to view Exhibit $14$B$-1$ and Exhibit $14$B$-2,$ to determine the appropriate discount factor$($s$)$ using tables.

Required:

Assuming that the car wash will be open $52$ weeks a year, compute the expected annual net cash inflows

from its operation.

$2-$a$.$ What is the net present value of the investment in the car wash?

$2-$b$.$ Should Mr$.$ Duncan open the car wash?