Reference no: EM132874412

Question - Encik Atan will retire in six years' time. He wants to open some type of small business operation that can be managed in the free time he has available from his regular occupation, but that can be closed easily when he retires. He is considering several investment alternatives, one of which is to open a self-service laundry. Encik Atan has determined the following facts after some careful researches:

1. Washers, dryers and other equipment needed would cost RM200,000. In addition, RM22,000 in working capital would be required to purchase an inventory of soap, softener, and related items and to provide change for change machines. (The soap, softener, and related items would be sold to customers at cost). After six years, the working capital would be released for investment elsewhere.

2. The self-service would charge RM6.00 use for washers and RM4.00 per use for the dryers. Encik Atan expects the laundry business to gross RM7,200 each week from the washers and RM6,000 each week from the dryers.

3. The only available costs in the laundry business would be 75 sen per use for water and electricity for washers and 90 sen per use of electricity for the dryer.

4. Fixed costs would be RM3,000 per month for rent, RM1,500 per month for cleaning, and RM1,875 per month for maintenance, insurance, and other items.

5. The equipment would have a 10% disposal value in six years.

Encik Atan will not open the self-service laundry unless it provides at least 12% return. Income tax is ignored in the operation of this business.

Required -

i) Compute the expected annual net cash receipt from the operations of the business of Encik Atan. Assume the self-service laundry is opened 52 weeks per year.

ii) Compute the net present value of the business.