Cindy justus is managing director of the wichita day care

Reference no: EM13578110

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 $26,435 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 $203 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 $103,813. Food, diapers, and other miscellaneous supplies are expected to total $13,886 annually.

Annual net income $ 3686
Net cash flow for the new nursery. $8973
The annual rate of return =28%
- The cash payback period for the new nursery. 2.95 years

Assuming that Wichita can borrow the money needed for expansion at 10%, compute the net present value of the new room. $?

Reference no: EM13578110

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