Question
You own a car wash, named A1A, that generates $500,000 in net income on revenues of $5 million. You are considering building another car wash
You own a car wash, named A1A, that generates $500,000 in net income on revenues of $5 million. You are considering building another car wash that will be able to generate annual revenues of $1.6 million. In addition, you have the following information.
You will need to invest $650,000 in building the new car wash. This investment will be depreciated straight line over 5 years to a salvage value of $100,000. You expect to spend an additional $250,000 each year for salary and related costs
To promote your new slogan Have an A1 Day! your annual advertising budget will increase from $80,000 to $120,000
Your inventory, which is currently $100,000, will increase to $150,000 immediately. This investment in inventory will be recovered at the end of the project.
You expect the cost of supplies to be 50% of revenues and you plan to run the service for the next 5 years.
The tax rate is 40%
Assuming a discount rate of 15%, what is the NPV and IRR of this project?
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