Cindy Justus is 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 $25,656 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 $204 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 $103,082. Food, diapers, and other miscellaneous supplies are expected to total $14,003 annually.
- Determine the following:
- Annual net income $
- Net cash flow for the new nursery. $
- The annual rate of return %
- The cash payback period for the new nursery. (Round to 2 decimal places, e.g. 5.25.) years
- Assuming that Wichita can borrow the money needed for expansion at 10%, compute the net present value of the new room. $