6 Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years until he retires. Hehas 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, thisworking capital would be released for investment elsewhere.d. Each customer would pay $1.25 for a wash and $0.55 for access to a vacuum cleaner.e. The only variable costs are 7.5 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 14B-1 and Exhibit 14B-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 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?Complete this question by entering your answers in the tabs below.Required 1 Required 2ARequired 2BAssuming that the car wash will be open 52 weeks a year, compute the expected annual net cash inflows from its operation.Auto wash cash receiptsVacuum cash receiptsTotal cash receiptsLess cash disbursementsWaterElectricityRentCleaningInsuranceMaintenanceTotal cash disbursements00

The net present value compares the present value of anticipated cash inflows and the expenditures to…

1. 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?

1. 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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 21P

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