Question
You want to retire in 6 years. You want to open some type of small business operation that can be managed in your free time
You want to retire in 6 years. You want to open some type of small business operation that can be managed in your free time but that can be closed easily when you retire. You are considering several investment alternatives; one option is to open a laundromat. After careful study, you have determined the following information:
A. Washers, dryers, and other equipment needed to open the laundrymat would cost $194,000. Additionally, $6,000 in working capital would be required to purchase an inventory of soap, bleach, and related items. The soap, bleach, and related items would be sold to customers at cost. After 6 years, the working capital would be released for investment elsewhere.
B. The laundromat would charge $1.5 0 per use for the washers and $.75 per use for the dryers. You expect the washers to be used 1,200 each week and the dryers 1,500 times.
C. The only variable cost in the laundromat would be $.07 per use for water and electricity for the washers and $.09 per use for gas and electricity for the dryers.
D. Fixed cost would be $3,000 per month for rent expense, $1,500 per month for cleaning expense and $1,875 per month for maintenance.
E. The equipment would have a 10% disposable value in 6 years.
You will not open the laundromat unless it provides at least a 12% return.
- Should you open the laundromat? Show computations using the net present value method of investment analysis.
***Please show calculations on the net present value, thank you!!***
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