In five years, kent duncan will retire. he is exploring the possibility of opening a self-service car wash. the car wash could be managed in the free time he has available from his regular occupation, and it could be closed easily when he retires. after careful study, mr. duncan determined the following:

a building in which a car wash could be installed is available under a five-year lease at a cost of $4,200 per month.

purchase and installation costs of equipment would total $310,000. in five years the equipment could be sold for about 10% of its original cost.

an investment of an additional $6,000 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 $1.30 for a wash and $.75 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, $2,700; insurance, $175; and maintenance, $1,735.

gross receipts from the wash would be about $2,730 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 11% return.

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. determine the net present value using the net present value method of investment analysis.

2-b. would you advise mr. duncan to open the car wash?

Blue computers, a major pc manufacturer in the united states, currently has plants in kentucky and pennsylvania. the kentucky plant has a capacity of 1 million units a year and the pennsylvania plant has a capacity of 1.5 million units a year. the firm divides the united states into five markets: northeast, southeast, midwest, south, and west. each pc sells for $1,000. the firm anticipates a 50 perc~nt growth in demand (in each region) this year (after which demand will stabilize) and wants to build a plant with a capacity of 1.5 million units per year to accommodate the growth. potential sites being considered are in north carolina and california. currently the firm pays federal, state, and local taxes on the income from each plant. federal taxes are 20 percent of income, and all state and local taxes are 7 percent of income in each state. north carolina has offered to reduce taxes for the next 10 years from 7 percent to 2 percent. blue computers would like to take the tax break into consideration when planning its network. consider income over the next 10 years in your analysis. assume that all costs remain unchanged over the 10 years. use a discount factor of 0.1 for your analysis. annual fixed costs, production and shipping costs per unit, and current regional demand (before the 50 percent growth) are shown in table 5-13. (a) if blue computers sets an objective of minimizing total fixed and variable costs, where should they build the new plant? how should the network be structured? (b) if blue computers sets an objective of maximizing after-tax profits, where should they build the new plant? how should the network be structured? variable production and shipping cost ($/unit) annual fixed cost northeast southeast midwest south west (million$) kentucky 185 180 175 175 200 150 pennsylvania 170 190 180 200 220 200 n. carolina 180 180 185 185 215 150 california 220 220 195 195 175 150 demand ('000 units/month) 700 400 400 300 600