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ABC Fitness Club has a set of treadmills and other exercise equipment that costs $ 600 , 000. They replace the entire set every 300
ABC Fitness Club has a set of treadmills and other exercise equipment that costs $600,000. They replace the entire set every 300 weeks with an identical set, and sell the old set for $60,000. The technology and the prices are expected to remain unchanged in perpetuity. Therefore, as a going concern, ABC Fitness Club can be reasonably expected to follow this replacement policy for ever. They bought the current equipment 50 weeks ago. Therefore, given the replacement policy and normal use, it will be replaced in exactly 250 weeks from now.
XYZ Health Club, a sister facility in the neighborhood, closed down temporarily, and asked ABC Fitness Club to let its members use ABC's facilities until it reopens. Taking into account the membership of the two clubs, it is estimated that ABC Club will have to replace their current equipment in 225 weeks if they still want to sell it for $60,000. In other words, the life of the current set of equipment that ABC has will be shortened by 25 weeks on account of its use by members of XYZ Health Club. Assuming the discount rate to be 0.18% per week, what payment from XYZ Health Club would compensate ABC Fitness Club for the fact that their current equipment will need replacement 25 weeks earlier?
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