The Spotless 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 The firm uses straight-line depreciation. The salvage value for the car wash is zero. The company's cutoff points are as follows: 10,000 Payback 3 years Accounting rate of return 18 % Internal rate of return 18 % Ignore income taxes. Required: Compute the annual cash inflow. Compute the net present value. Compute internal rate of return. Compute the payback perio Compute the profitability index. Should the car wash be purchased?

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

Accounting Mar 16, 2021

The Spotless 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 The firm uses straight-line depreciation. The salvage value for the car wash is zero. The company's cutoff points are as follows:	10,000
Payback	3 years
Accounting rate of return	18 %
Internal rate of return	18 %

Ignore income taxes.

Required:

1. Compute the annual cash inflow.
2. Compute the net present value.
3. Compute internal rate of return.
4. Compute the payback perio
5. Compute the profitability index.
6. Should the car wash be purchased?

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