The Cleanest Automobile Corporation is contemplating the acquisition of an automatic car wash. The following information is relevant:
The cost of the car wash is $160,000
The anticipated revenue from the car wash is $100,000 per annum.
The useful life of the car wash is 10 years.
Annual operating costs are expected to be:
Salaries $30,000
Utilities 9,600
Water usage 4,400
Supplies 6,000
Repairs/maintenance 10,000
The firm uses straight-line depreciation.
The salvage value for the car wash is zero.
The company's cutoff points are as follows:
Payback 3 years
Accounting rate of return 18%
Internal rate of return 18%
Ignore income taxes.
Required:
a. Compute the annual cash inflow.
b. Compute the net present value.
c. Compute internal rate of return.
d. Compute the payback period.
e. Compute the profitability index.
f. Should the car wash be purchased?