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

Accounting

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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