In eight 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 has detrmined the following:

a. Abuilding in which a car wash could be installed is available under an eight-year lease at a cost of $7,000 per month

b. Purchase and installation costs of equipment would total $200,000. In eight years the equipment could be sold for about 10% of its original cost.

c. An investment of an additional $2,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. After eight years, this working capital would be released for investment elsewhere.

d. Both a wash and a vacuum service would be offered with a wash costing $2.00 and the vacuum $1.00 per use.

e. The only variable costs associated with the operation would be 20 cents per wash for water and 10 cents per use of the vacuum for electricity.

f. In addition to rent, monthly costs of operation would be: cleaning, $450, insurance, $75; and manitenance, $500.

g. Gross receipts from the wash would be about $1,350 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 10% return.:confused::confused::confused::confused:

Assume that the car wash will be open 52 weeks a year, compute the expected net annual cash receipts (gross cash receipts less cash disbursements) from its operation (Do not include the cost of the equipment, the working capital, or the alvage value in these computations

First, look at items (d) and (g) and tell how many washes, and how many vacuums, Duncan expects to sell per week, and then per year.

Using that information, determine the total annual variable cost of item (e).

We'll start with that. Back to you.