Bolds Gym, a health club chain, is considering expanding into a new location: the initial investment would

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%. (See Table S7.2.)

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., 1 year free). Would it make financial sense to offer this deal?

 lop25

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Operations Management Sustainability And Supply Chain Management

ISBN: 9781292295039

13th Global Edition

Authors: Jay Heizer, Barry Render, Chuck Munson

Question Posted: