Answered: Bold's Gym, a health club chain, is…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

Bold's Gym, a health club chain, is considering
expanding into a new location: the initial investment would be $1
million in equipment, renovation, and a 6-year lease, and its annual
upkeep and expenses would be $75,000 (paid at the beginning of the
year). Its planning horizon is 6 years out, and at the end, it can sell the
equipment for $50,000. Club capacity is 500 members who would pay
an annual fee of$600. Bold's expects to have no problems filling membership
slots. Assume that the interest rate is 10%.
a) What is the present value profit/loss of the deal?
b) The club is considering offering a special deal to the members in
the first year. For $3,000 upfront they get a full 6-year membership
(i .e., I year free). Would it make financial sense to offer this deal?

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