a. A building in which a car wash could be installed is available under a five-year lease at a cost of $4,900 per month, b. Purchase and installation costs of equipment would total $300,000. In five years the equipment could be sold for about 10% original cost. c. An investment of an additional $5,000 would be required to cover working capital needs for cleaning supplies, change fund so forth. After five years, this working capital would be released for investment elsewhere. d. Both a wash and a vacuum service would be offered. Each customer would pay $1.17 for a wash and $.60 for access to a va cleaner. e. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 cents per use of the vac electricity. f. In addition to rent, monthly costs of operation would be: cleaning, $3,400; insurance, $55; and maintenance, $1,925. g. Gross receipts from the wash would be about $3,276 per week. According to the experience of other car washes, 60% of th 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 148.1 and Exhibit 148-2, to determine the appropriate discount factor(s) using tables. Required: 1. Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation 2-0. What is the net present value of the investment in the car wash?
a. A building in which a car wash could be installed is available under a five-year lease at a cost of $4,900 per month, b. Purchase and installation costs of equipment would total $300,000. In five years the equipment could be sold for about 10% original cost. c. An investment of an additional $5,000 would be required to cover working capital needs for cleaning supplies, change fund so forth. After five years, this working capital would be released for investment elsewhere. d. Both a wash and a vacuum service would be offered. Each customer would pay $1.17 for a wash and $.60 for access to a va cleaner. e. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 cents per use of the vac electricity. f. In addition to rent, monthly costs of operation would be: cleaning, $3,400; insurance, $55; and maintenance, $1,925. g. Gross receipts from the wash would be about $3,276 per week. According to the experience of other car washes, 60% of th 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 148.1 and Exhibit 148-2, to determine the appropriate discount factor(s) using tables. Required: 1. Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation 2-0. What is the net present value of the investment in the car wash?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text: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 in which a car wash could be installed is available under a five-year lease at a cost of $4,900 per month,
b. Purchase and installation costs of equipment would total $300,000. In five years the equipment could be sold for about 10% of its
original cost.
c. An investment of an additional $5,000 would be required to cover working capital needs for cleaning supplies, change funds, and
so forth. After five years, this working capital would be released for investment elsewhere.
d. Both a wash and a vacuum service would be offered. Each customer would pay $1.17 for a wash and $.60 for access to a vacuum
cleaner.
e. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 cents per use of the vacuum for
electricity.
f. In addition to rent, monthly costs of operation would be: cleaning, $3,400; insurance, $55; and maintenance, $1,925.
g. Gross receipts from the wash would be about $3,276 per week. According to the experience of other car washes, 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 148-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation.
2-a. What is the net present value of the investment in the car wash?
2-b. Would you advise Mr. Duncan to open the car wash?
Transcribed Image Text:Req 1
Req 2A
Water
Electricity
Rent
Cleaning
Insurance.
Req 2B.
Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation
Auto wash cash receipts
Vacuum cash receipts
Total cash receipts
Less cash disbursements:
Maintenance.
Total cash disbursements
Annual net cash receipts from operations
Req 1
$
0
0
Req 2 >
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