Install the additional equipment if she expects a pretax

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Reference no: EM1384152

Kin Epson operates a full-service car wash, which operates from 8 A.M. to 8 P.M. seven days a week. The car wash has two stations: an automatic washing and drying station and a manual interior cleaning station. The automatic washing and drying station can handle 30 cars per hour. The interior cleaning station can handle 200 cars per day. Based on a recent year-end review of operations, Kim estimates that future demand for the interior cleaning station for the seven days of the week, expressed in average number of cars per day, would be as follows:

Day Mon. Tue. Wed. Thurs. Fri. Sat. Sun.
Cars 160 180 150 140 280 300 250

By installing additional equipment (at a cost of $50,000) Kim can increase the capacity of the interior cleaning station to 300 cars per day. Each car was generates a pretax contribution of $4.00. Should Kim install the additional equipment if she expects a pretax payback period of three years or less?

Reference no: EM1384152

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