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 $26,690 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 $216 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 $101,400. Food, diapers, and other miscellaneous supplies are expected to total $12,400 annually.

(a) Determine annual net income and net cash flow for the new nursery

Explanation / Answer

investment required      26,690 useful life                 5 years depreciation        5,338 infants              12 charge on weekly basis            216 annual income    134,784 12*216*52 Staffing salary    101,400 fooFood, diapers      12,400 Depreciation        5,338 Total cost    119,138 Annual Net income      15,646 ADD: Depreciation        5,338 Annual Cash Flow      20,984

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