The Tracey Company is thinking of opening a small laundromat. Here is the inform

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The Tracey Company is thinking of opening a small laundromat. Here is the information needed to make a decision about this investment: All yellow cells must be a formula or cell reference in order to get full credit. Cost of equipment $194,000 washers, dryers, and other equipment Required working capital $6,000 soap, etc. Will be released at end of Yr 6 Charge per use for washers $1.50 per USE Charge per use for dryers $0.75 per USE Expected weekly gross for washers $1,800 per WEEK Expected weekly gross for dryers $1,125 per WEEK Variable cost per use for washers $0.075 per USE for water and electricity Variable cost per use for dryers $0.09 per USE for gas and electricity Fixed costs PER MONTH: Building rent $3,000 per MONTH Cleaning $1,500 per MONTH Maintenance, insurance, other $1,875 per MONTH Salvage value of equipment in 6 years 10% Required rate of return 12% Weeks per year the laundromat is open 52 Required: (1) Assuming the laundromat would be open 52 weeks a year, compute the expected annual net cash receipts from its operations (gross cash receipts less cash disbursements). Average WEEKLY use of washers and dryers: Gross Per Use # of Uses Washers Try Again! Try Again! Try Again! Gross Per Use # of Uses Dryers Try Again! Try Again! Try Again! Expected net annual cash receipts: Washer cash receipts Try Again! Dryer cash receipts Try Again! Total cash receipts Try Again! Less cash disbursements Washer: water & electricity Try Again! Dryer: gas & electricity Try Again! Rent Try Again! Cleaning Try Again! Maintenance and other Try Again! Total cash disbursements Try Again! Annual net cash receipts Try Again! (2) Compute the NPV for this investment. Remember, cash inflows are shown as positive numbers and cash outflows are shown as negataive numbers. I did the formulas in Column G for you but you should go and look at them. (The =ROUND() function will round an answer to the number of decimal places specified after the comma. In this case it is zero.) Item Year(s) Amount of Cash Flows 12% Factor PV of Cash Flows Cost of the equipment Now 1.000 $0 Try Again! Working capital needed Now 1.000 $0 Try Again! Annual net cash receipts 1-6 4.111 $0 Try Again! Salvage value of equipment 6 0.507 $0 Try Again! Working capital released 6 0.507 $0 Try Again! Net Present Value $0 Try Again! A1 Tracey Excel The Tracey Company is thinking of opening a small laundromat. Here is the information needed to make a decision about this investment: All yellow cells must be a formula or cell reference in order to get full credit. Cost of equipment Required working capital Charge per use for washers Charge per use for dryers 194,000 washers, dryers, and other equipment $6,000 soap, etc. Will be released at end of Yr6 $1.50 per USE $0.75 10 $1,800 $1,125 $0.075 per USE per WEEK per WEEK per USE for water and electricity per USE for gas and electricity 12 pected weekly gross for washers Expected weekly gross for dryers Variable cost per use for washers Variable cost per use for dryers 13 $0.09 15 16 17 18 19 20 Fixed costs PER MONTH: Building rent Cleaning Maintenance, insurance, other $3,000 per MONTH $1,500 per MONTH $1,875 per MONTH Salvage value of equipment in 6 years Required rate of return Weeks per year the laundromat is open 10% 12% 52 23 24 Required (1) Assuming the laundromat would be open 52 weeks a year, compute the expected Sheet1

Explanation / Answer

1. Average weekly use of the washers and dryers:

Washers: GROSS AMOUNT DIVIDED BY AMOUNT PER USE = NUMBER OF USES

$1800/$1.50 = 1200 uses

Dryers : GROSS AMOUNT DIVIDED BY AMOUNT PER USE = NUMBER OF USES

$1125/$0.75 = 1500 uses

The expected annual net cash receipts would be:

Washer Cash Receipts: $1800*52 weeks = &93,600

Dryer Cash Receipts: $1125*52 weeks = $58,500

Total Cash Receipts = Washer Cash receipts + Dryer Cash receipts

= $93,600 + $ 58,500

= $ 152,100

Less Cash Disbursements :

Washer: Water and Electricity ($0.075*1200 uses*52 weeks) = $4,680

Dryer :Gas and Electricity ($0.09*1500 uses*52 weeks) = $7,020

Rent : ($3000 per month * 12 months) = $36,000

Cleaning: ($1500 per month * 12 months) = $18,000

Maintenance and other : ($1875 per month * 12 months) = $22,500

Total Cash Disbursements:($4,680+$7,020+$36,000+$18,000+$22,500) = $88,200

Annual Net Cash Receipts : ($152,100-$88,200) = $63,900

2.Computation of the NPV for this investment:

Cost of the Equipment

Annual Net Cash Receipts

ITEM Years Amount of Cash Flows ($) 12% Factor PV of Cash Flows ($)

Cost of the Equipment

Now (194000) 1.000 (194000) Working Capital Needed Now (6000) 1.000 (6000)

Annual Net Cash Receipts

1-6 63,900 4.111 262,693 Salvage Value of Equipment 6 19,400 0.507 9,836 Working Capital Released 6 6000 0.507 3042 Net Present Value $75,571

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