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Homework answers / question archive / The Sun Corp
The Sun Corp. 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 straightline 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? 
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