The Charles Barkley Fitness Club is looking to expand its current facility by adding space for more weights, ardio equipment, and a made-to-order donut bar. The expansion and equipment investments will cost $ 100,000 initially and have a useful life of 15 years and a salvage value of $15,000. The additional area will ttract 500 customers a year, paying $20 a month, but will cost an additional $20,000 annually to maintain. Due to Barkleys credit, the cost of capital is only 6%. Charles Barkley is in the 35% tax bracket. Is this a wise vestment? Show all work to illustrate your answer.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The Charles Barkley Fitness Club is looking to expand its current facility by adding space for more weights,
cardio equipment, and a made-to-order donut bar. The expansion and equipment investments will cost $
900,000 initially and have a useful life of 15 years and a salvage value of $15,000. The additional area will
attract 500 customers a year, paying $20 a month, but will cost an additional $20,000 annually to maintain.
Due to Barkleys credit, the cost of capital is only 6%. Charles Barkley is in the 35% tax bracket. Is this a wise
investment? Show all work to illustrate your answer.
Transcribed Image Text:The Charles Barkley Fitness Club is looking to expand its current facility by adding space for more weights, cardio equipment, and a made-to-order donut bar. The expansion and equipment investments will cost $ 900,000 initially and have a useful life of 15 years and a salvage value of $15,000. The additional area will attract 500 customers a year, paying $20 a month, but will cost an additional $20,000 annually to maintain. Due to Barkleys credit, the cost of capital is only 6%. Charles Barkley is in the 35% tax bracket. Is this a wise investment? Show all work to illustrate your answer.
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