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Capital Budgeting problem

Capital Budgeting problem - used A yearly maintenance cost...

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Capital Budgeting Sparkle Company owns three car wash facilities. Each facility, however, only has equipment to wash cars. The owner thinks that if a vacuum cleaner is added to each lot that more people might wash their cars at his sites. The owner shopped around and found the “Suck It Up” car vacuum cleaner machines. Each machine will cost $12,000 plus a 5% sales tax. Delivery of the machine will be $400. A concrete base and new electrical work to hook up the machine will cost $1,750. The city will charge an installation inspection fee of $250 to certify that the machine meets city code before it can be
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Unformatted text preview: used. A yearly maintenance cost for the machine will be $300. The equipment is expected to be used for three years and then sold for $3,000. The machine is expected to provide $6,000 a year in cash vacuum cleaner use and increase car wash cash sales by $10,000 a year. Electricity cost for the use of the vacuum will be $400 a year and increased costs for the increased car wash revenue will be $1,600 a year. The company’s cost of capital is 8% and the tax rate is 20%. Determine if the company should acquire this piece of equipment....
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