Problem 23-5A Cindy Justus is the managing director of the Wichita Day Care Cent

Question

Problem 23-5A Cindy Justus is the managing director of the Wichita Day Care Center. Wichita is currently set up as a full-time child care facility for children between the ages of 12 months and 6 years. Cindy is trying to determine whether the center should expand its facilities to incorporate a newborn care room for infants between the ages of 6 weeks and 12 months. The necessary space already exists. An investment of $24,550 would be needed, however, to purchase cribs, high chairs, etc. The equipment purchased for the room would have a 5-year useful life with zero salvage value. The newborn nursery would be staffed to handle 12 infants on a full-time basis. The parents of each infant would be charged $202 weekly, and the facility would operate 52 weeks of the year. Staffing the nursery would require two full-time specialists and five part-time assistants at an annual cost of $101,600. Food, diapers, and other miscellaneous supplies are expected to total $12,100 annually. (a) Your answer is correct. Determine annual net income and net cash flow for the new nursery Annual Net Income Annual Cash Flow Click if you would like to Show Work for this question: 7438 12348 Open Show Work

Explanation / Answer

Wichita day Care centre Details Accounting Income per years Amt $ Revenue for 52 weeks @$202 per weekfor 12 infants=             126,048 Costs   Annual staff salary             101,600 Supplies               12,100 Annual depreciation                    4,910 Total Costs             118,610 a Net Income                  7,438 Add Back depreciation                    4,910 Annual Cash flow               12,348 b Investment               24,550 Average Investment =(Investment+Salvage)/2               12,275 Annual Accountinmg income                    7,438 Annual Rate of return = 60.6% Annual Cash flow=               12,348 Cash Payback period=24550/12348=                    1.99 Years c NPV aclculation Details Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Investment             (24,550) Annual Cash Inflows             12,348            12,348            12,348        12,348              12,348 Net Cash flows             (24,550)             12,348            12,348            12,348        12,348              12,348 PV factor @10%                  1.000               0.909              0.826              0.751           0.683                 0.621 PV of net Cash flows             (24,550)             11,225            10,205              9,277           8,434                 7,667 NPV =Sum of PV of Cash flows= $     22,258.64

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