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In eight years, Ronna Davies will retire. She has $$315,000$ to invest, and she is exploring the possibility of opening a self$-$service car wash. The car wash could be managed in the free time she has available from her regular occupation, and it could be closed easily when she retires. After careful study, Davies has determined the following:

a$.$ A building, in which a car wash could be installed, is available under an eight$-$year lease at a cost of $$3,400$ per month.

b$.$ Purchase and installation costs of equipment would total $$312,000.$ In eight years, the equipment could be sold for about $10\%$ of its original cost.

c$.$ An investment of an additional $$4,000$ would be required to cover working capital needs for cleaning supplies, change funds, and so forth. After eight years, this working capital would be released for investment elsewhere.

d$.$ Both a car wash and a vacuum service would be offered, with a wash costing $$3$ and the vacuum costing $50$ cents per use.

e$.$ The only variable costs associated with the operation would be $46$ cents per wash for water and $20$ cents per use of the vacuum for electricity.

f$.$ In addition to rent, monthly costs of operation would be as follows: cleaning, $$900$; insurance, $$150$; maintenance, $$1,000.$

g$.$ Gross receipts from the car wash would be about $$3,000$ per week. According to the experience of other car washes, $70\%$ of the customers using the wash would also use the vacuum.

h$.$ Davies will not open the car wash unless it provides at least a $10\%$ return, since this is the amount that could be earned by simply placing the $$315,000$ in high$-$grade securities$.$

Click here to view Exhibit $10-1$ and Exhibit $10-2,$ 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 net annual cash receipts $($gross cash receipts less cash disbursements$)$ from its operation. $($Do not include the cost of the equipment, the working capital, or the salvage value in these computations.$)$

$2-$a$.$ Compute the NPV using the method of investment analysis. $($Round discount factor$($s$)$ to $3$ decimal places. Round other intermediate calculations and final answer to the nearest whole dollar amount.$)$

$2-$b$.$ Would you advise Davies to open the car wash?

multiple choice

$$ Yes Correct

$$ No$.$

the answer of cash receipts should be $$77,600$ and npv of cashflow

should be $ $114,401$

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