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:
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:
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
Related questions
Question
100%
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 building in which a car wash could be installed is available under a five-year lease at a cost of $3,400 per month.
-
Purchase and installation costs of equipment would total $315,000. In five years the equipment could be sold for about 10% of its original cost.
-
An investment of an additional $2,000 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.
-
Both a wash and a vacuum service would be offered. Each customer would pay $1.54 for a wash and $.85 for access to a vacuum cleaner.
-
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.
-
In addition to rent, monthly costs of operation would be: cleaning, $1,900; insurance, $75; and maintenance, $1,675.
-
Gross receipts from the wash would be about $2,002 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 12% 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 receipts from its operation.
2-a. What is the
2-b. Would you advise Mr. Duncan to open the car wash?
Transcribed Image Text:EXHIBIT 14B-2 Present Value of an Annulty of $1 In Arrears;
(1+ r)"
Periods
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
1
0.962
0.952 0.943
0.935
0.926
0.917
0.909 0.901 0.893 0.885 0.877
0.870 0.862
0.855 0.847
0.840
0.833
0.826
0.820 0.813
0.806 0.800
2
1.886
1.859
1.833
1.808
1.783
1.759
1.736
1.713
1.690
1.668
1.647
1.626 1.605
1.585
1.566 1.547
1.528
1.509
1.492 1.474
1.457
1.440
3
2.775
2.723
2.673
2.624
2.577
2.531
2.487
2.444
2.402 2.361
2.322 2.283 2.246 2.210
2.174
2.140
2.106
2.074
2.042 2.011
1.981
1.952
4
3.630
3.546
3.465
3.387
3.312
3.240
3.170
3.102
3.037 2.974
2.914
2.855 2.798
2.743
2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362
4.452
4.329
4.212
4.100
3.993
3.890
3.791
3.696
3.605 3.517
3.433
3.352
3.274 3.199
3.127
3.058 2.991
2.926 2.864 2.803 2.745
2.689
6
5.242
5.076
4.917
4.767
4.623
4.486
4.355 4.231
4.111
3.998 3.889
3.784 3.685 3.589 3.498 3.410
3.326 3.245 3.167
3.092 3.020 2.951
7
6.002
5.786
5.582
5.389
5.206
5.033
4.868
4.712
4.564 4.423
4.288 4.160
4.039 3.922 3.812
3.706
3.605 3.508 3.416
3.327
3.242 3.161
8
6.733
6.463
6.210
5.971
5.747
5.535
5.335 5.146
4.968 4.799
4.639 4.487
4.344 4.207
4.078 3.954 3.837
3.726
3.619
3.518
3.421
3.329
7.435
7.108
6.802
6.515
6.247
5.995
5.759
5.537
5.328 5.132
4.946 4.772
4.607 4.451
4.303 4.163
4.031
3.905 3.786
3.673
3.566 3.463
10
8.111
7.722
7.360
7.024
6.710
6.418
6.145
5.889 5.650 5.426
5.216
5.019
4.833 4.659
4.494 4.339
4.192
4.054 3.923 3.799
3.682 3.571
11
8.760
8.306
7.887
7.499
7.139
6.805
6.495 6.207
5.938 5.687
5.453 5.234 5.029 4.836 4.656 4.486
4.327 4.177
4.035 3.902 3.776
3.656
12
9.385
8.863
8.384
7.943
7.536
7.161
6.814
6.492 6.194
5.918
5.660 5.421 5.197
4.988
4.793
4.611
4.439 4.278
4.127
3.985 3.851
3.725
13
9.986
9.394
8.853
8.358
7.904
7.487
7.103
6.750
6.424 6.122
5.842 5.583
5.342 5.118
4.910
4.715
4.533
4.362 4.203 4.053
3.912
3.780
14
10.563 9.899
9.295
8.745
8.244
7.786
7.367
6.982 6.628 6.302 6.002 5.724
5.468 5.229 5.008 4.802 4.611
4.432
4.265 4.108
3.962 3.824
15
11.118
10.380 9.712
9.108
8.559
8.061
7.606
7.191
6.811
6.462 6.142
5.847 5.575
5.324 5.092 4.876
4.675 4.489
4.315
4.153
4.001
3.859
16
11.652
10.838 10.106
9.447
8.851
8.313
7.824
7.379
6.974 6.604
6.265 5.954 5.668 5.405 5.162
4.938 4.730
4.536 4.357 4.189
4.033 3.887
17
12.166
11.274
10.477
9.763
9.122
8.544
8.022 7.549
7.120
6.729
6.373
6.047 5.749
5.475
5.222 4.990 4.775
4.576
4.391
4.219
4.059 3.910
18
12.659 11.690
10.828 10.059 9.372
8.756
8.201
7.702
7.250
6.840
6.467 6.128
5.818
5.534 5.273 5.033
4.812
4.608
4.419
4.243 4.080 3.928
19
13.134
12.085 11.158
10.336 9.604
8.950
8.365 7.839
7.366 6.938 6.550 6.198
5.877
5.584 5.316 5.070
4.843 4.635
4.442
4.263 4.097
3.942
20
13.590 12.462 11.470
10.594 9.818
9.129
8.514
7.963 7.469
7.025
6.623 6.259 5.929 5.628 5.353 5.101
4.870
4.657 4.460 4.279
4.110
3.954
21
14.029 12.821
11.764
10.836 10.017
9.292
8.649
8.075 7.562
7.102
6.687
6.312
5.973 5.665 5.384
5.127
4.891
4.675
4.476 4.292 4.121
3.963
22
14.451
13.163
12.042 11.061
10.201 9.442
8.772
8.176
7.645
7.170
6.743
6.359 6.011
5.696 5.410
5.149
4.909 4.690
4.488
4.302 4.130
3.970
23
14.857
13.489 12.303 11.272
10.371 9.580
8.883
8.266 7.718
7.230
6.792 6.399 6.044 5.723 5.432 5.167
4.925 4.703
4.499 4.311
4.137
3.976
24
15.247 13.799
12.550 11.469
10.529 9.707
8.985 8.348 7.784
7.283
6.835 6.434 6.073 5.746
5.451 5.182
4.937
4.713
4.507 4.318
4.143
3.981
25
15.622 14.094 12.783
11.654
10.675 9.823
9.077
8.422 7.843
7.330
6.873
6.464 6.097 5.766
5.467 5.195
4.948 4.721
4.514
4.323 4.147
3.985
26
15 983 14.375
13.003 11.826
10.810 9.929
9.161
8.488
8 488 7.896 7.372
6.906 6.491
6.118
5.783
5.480 5.206 4.956 4.728
4.520 4.328 4.151
3.988
27
16.330 14.643
13.211
11.987
10.935 10.027
9.237
8.548
7.943
7.409
6.935 6.514 6136
5.798
5.492 5.215
4.964 4.734
4.524 4.332
4.154
3.990
28
16.663 14.898 13.406
12.137
11.051
10.116
9.307 8.602 7.984
7.441
6.961
6.534 6.152
5.810
5.502 5.223 4.970 4.739
4.528 4.335 4.157
3.992
29
16.984 15,141
13.591
12.278 11.158
10.198
9.370 8.650 8.022 7.470
6.983 6.551
6.166
5.820 5.510 5.229 4.975
4.743
4.531
4.337
4.159
3.994
30
17.292
15.372 13.765
12.409 11.258 10.274 9.427
8.694 8.055 7.496 6.566 6.177
7.003
5.829 5.517 5.235 4.979
4.746
4.534 4.339
4.160
3.995
40
19.793
17.159
15.046 13.332 11.925 10.757 9.779
8.951
8.244 7.634
7105
6.642
6.233 5.871
5.548 5.258 4.997 4.760
4.544 4.347
4.166
3.999
Transcribed Image Text:EXHIBIT 14B-1 Present Value of $1;
(1+ r)"
Periods
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
1
0.962 0.952 0.943 0.935
0.926 0.917
0.909 0.901 0.893 0.885 0.877
0.870
0.862
0.855
0.847
0.840 0.833 0.826 0.820 0.813
0.806 0.800
0.925 0.907
0.890 0.873
0.857 0.842 0.826 0.812
0.797
0.783
0.769 0.756
0.743
0.731
0.718
0.706 0.694 0.683 0.672
0.661
0.650 0.640
0.889 0.864 0.840 0.816
0.794
0.772
0.751
0.731
0.712
0.693
0.675
0.658 0.641
0.624
0.609 0.593
0.579 0.564 0.551
0.537 0.524 0.512
4
0.855 0.823
0.792 0.763
0.735
0.708
0.683 0.659 0.636 0.613
0.592 0.572
0.552 0.534 0.516
0.499 0.482 0.467
0.451
0.437
0.423 0.410
0.822
0.784
0.747
0.713
0.681
0.650 0.621
0.593 0.567 0.543
0.519
0.497
0.476
0.456 0.437
0.419
0.402 0.386 0.370 0.355 0.341 0.328
0.790 0.746 0.705
0.666 0.630 0.596 0.564
0.535 0.507 0.480
0.456 0.432 0.410
0.390 0.370 0.352 0.335 0.319
0.303 0.289 0.275 0.262
7
0.760
0.711
0.665 0.623
0.583
0.547
0.513
0.482
0.452 0.425 0.400 0.376
0.354
0.333
0.314
0.296 0.279 0.263 0.249
0.235 0.222 0.210
8
0.731
0.677
0.627
0.582
0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305
0.285 0.266 0.249 0.233 0.218
0.204 0.191
0.179
0.168
9
0.703
0.645 0.592 0.544 0.500 0.460 0.424
0.391
0.361
0.333
0.308 0.284
0.263 0.243
0.225
0.209 0.194
0.180
0.167
0.155
0.144
0.134
10
0.676
0.614
0.558
0.508 0.463
0.422
0.386
0.352 0.322
0.295 0.270 0.247
0.227 0.208 0.191 0.176 0.162 0.149
0.137
0.126
0.116
0.107
11
0.650
0.585 0.527 0.475
0.429 0.388 0.350 0.317
0.287
0.261
0.237 0.215 0.195
0.178
0.162 0.148 0.135
0.123
0.112
0.103
0.094 0.086
12
0.625
0.557 0.497
0.444
0.397
0.356 0.319
0.286 0.257
0.231 0.208 0.187 0.168 0.152
0.137 0.124 0.12
0.102
0.092 0.083 0.076 0.069
13
0.601
0.530 0.469 0.415
0.368 0.326 0.290 0.258 0.229 0.204 0.182
0.163 0.145
0.130
0.116 0.104 0.093 0.084 0.075
0.068 0.061 0.055
14
0.577 0.505
0.442 0.388 0.340 0.299 0.263
0.232 0.205 0.181
0.160 0.141 0.125
0.11
0.099 0.088 0.078
0.069 0.062 0.055 0.049 0.044
15
0.555 0.481
0.417
0.362 0.315
0.275 0.239 0.209 0.183
0.160 0140 0.123 0.108
0.095 0.084 0.074
0.065 0.057 0.051
0.045 0.040 0.035
16
0.534 0.458 0.394 0.339 0.292
0.252 0.218
0.188
0.163
0.141
0.123
0.107
0.093 0.081
0.071
0.062 0.054
0.047
0.042 0.036 0.032 0.028
17
0.513
0.436 0.371
0.317
0.270 0.231
0.198
0.170
0.146
0.125
0.108
0.093 0.080 0.069 0.060 0.052 0.045 0.039 0.034 0.030 0.026 0.023
18
0.494 0.416
0.350 0.296 0.250 0.212
0.180
0.153
0.130
0.111
0.095 0.081 0.069
0.059 0.051
0.044 0.038 0.032 0.028 0.024 0.021
0.018
19
0.475 0.396
0.331
0.277
0.232 0.194
0.164
0.138
0.116
0.098 0.083 0.070 0.060
0.051 0.043 0.037
0.031 0.027 0.023 0.020 0.017
0.014
20
0.456 0.377
0.312
0.258 0.215
0.178
0.149
0.124
0.104
0.087
0.073 0.061
0.051
0.043 0.037
0.031
0.026 0.022 0.019
0.016
0.014 0.012
21
0.439 0.359 0.294 0.242 0.199
0.164
0.135
0.112
0.093 0.077
0.064 0.053 0.044 0.037 0.031
0.026 0.022 0.018
0.015 0.013
0.011 0.009
22
0.422 0.342 0.278
0.226 0.184
0.150
0.123 0.101
0.083 0.068
0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.015
0.013
0.011
0.009 0.007
23
0.406 0.326 0.262 0.211
0.170 0138 0.112
0.091 0.074 0.060 0.049 0.040 0.033
0.027 0.022
0.018 0.015 0.012 0.010 0.009 0.007 0.006
24
0.390 0.310
0.247 0.197
0.158
0.126
0.102
0.082 0.066 0.053
0.043 0.035 0.028 0.023 0.019 0.015 0.013 0.010 0.008 0.007
0.006 0.005
25
0.375 0.295 0.233
0.184
0.146
0.116 0.092 0.074
0.059 0.047
0.038 0.030
0.024 0.020 0.016
0.013 0.010 0.009 0.007 0.006 0.005 0.004
26
0.361
0.281
0.220 0.172
0.135
0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017
0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003
27
0.347
0.268 0.207
0.161
0.125
0.098 0.076 0.060 0.047
0.037
0.029 0.023 0.018
0.014 0.011
0.009 0.007 0.006 0.005 0.004 0.003 0.002
28
0.333 0.255 0.196 0.150 0116
0.090 0.069 0.054 0.042 0.033 0.026 0.020 0.016
0.012 0.010
0.008 0.006 0.005 0.004 0.003 0.002 0.002
29
0.321 0.243
0.185 0.141
0.107
0.082 0.063 0.048 0.037 0.029 0.022 0.017
0.014
0.011 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002
30
0.308 0.231
0174
0.131
0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.012
0.009 0.007 0.005 0.004 0.003 0.003 0.002 0.002 0.001
40
0.208 0.142
0.097 0.067 0.046 0.032 0.022 0.015
0.011 0.008 0.005 0.004
0.003 0.002 0.001
0.001
0.001 0.000 0.000 0.000 0.000 0.000
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