1.

Capital Budgeting

As a former college athlete, Mike Carpenter strongly believes in the benefits of being healthy and physically fit. He returned to his hometown in 2000 and opened the WeightsPlus Health Club the following year to enhance the lives of the individuals and families in his community through exercise. This member-based club focuses on providing a total workout experience which includes a full line of cardio equipment (treadmills, steppers, ellipticals, rowing machines, and stationary bicycles), free weights, a twenty-five meter lap pool and three indoor basketball courts. The club also offers group and individual fitness instruction to its members through its staff of personal trainers. Although Mike experienced high start-up costs and did not expect to generate a profit for the first four years of operation, the popularity of the club grew faster than anticipated, especially with active individuals over fifty years of age, and WeightsPlus had profits of $500,000 at the end of the third year.

Slowed by the economic downturn in 2009, Mike had to postpone major updates to WeightsPlus. During this time his membership dropped by twenty-five percent. To reduce operating expenses, he cut back on the club