Homework answers / question archive / The Claveria Automobile Corporation is contemplating the acquisition of an automatic car wash

The Claveria Automobile Corporation is contemplating the acquisition of an automatic car wash

Accounting

Share With

The Claveria Automobile Corporation is contemplating the acquisition of an automatic car wash. The following information is relevant: The cost of the car wash is P160,000 The anticipated revenue from the car wash is P100,000 per annum. The useful life of the car wash is 10 years. Annual operating costs are expected to be: Salaries P30,000 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.

11) Compute the annual cash inflow.

12) Compute the net present value. Should the car wash be purchased?

13) Compute internal rate of return. Should the car wash be purchased?

14) Compute the payback period. Should the car wash be purchased?

15) Compute the profitability index. Should the car wash be purchased?