Cindy Justus is the managing director of the Wichita Day Care Center. Wichita is

Question

Cindy Justus is the 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 $25,750 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 $205 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 $100,100. Food, diapers, and other miscellaneous supplies are expected to total $12,600 annually.

Determine annual net income and net cash flow for the new nursery.

Annual Net Income $

Annual Cash Flow $ 15220

Please show me how to calculate Annual Net Income, thank you

Explanation / Answer

Answer:

Amount $ Annual revenue (12 *205 *52)          127,920.00 Less: Specialist and assistant cost          100,100.00 Less: Food, diaper and other miscellaneous supplies            12,600.00 Less: Depreciation (25750/5)               5,150.00 Annual net income            10,070.00 Add: Depreciation               5,150.00 Annual cash inflows            15,220.00

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