Bold's Gym, a health club chain, is consideringexpanding into a new location: the initial investment would be $1million in equipment, renovation, and a 6-year lease, and its annualupkeep and expenses would be $75,000 (paid at the beginning of theyear). Its planning horizon is 6 years out, and at the end, it can sell theequipment for $50,000. Club capacity is 500 members who would payan annual fee of$600. Bold's expects to have no problems filling membershipslots. 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 inthe 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?
Bold's Gym, a health club chain, is consideringexpanding into a new location: the initial investment would be $1million in equipment, renovation, and a 6-year lease, and its annualupkeep and expenses would be $75,000 (paid at the beginning of theyear). Its planning horizon is 6 years out, and at the end, it can sell theequipment for $50,000. Club capacity is 500 members who would payan annual fee of$600. Bold's expects to have no problems filling membershipslots. 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 inthe 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?
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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| 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 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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