Bold's Gym, a health club chain, is considering expanding into a new location: the initial investment would be $1.2 million in equipment, renovation, and a 6-year lease, and its annual upkeep and expenses would be $85,000 (paid at the beginning of the year). Its planning horizon is 6 years out, and at the end, it can sell the equipment for $55,000. Club capacity it 500 members who would pay an annual fee of $600 at the beginning of each year. Bold's expects to sell 50% of its memberships the first year, another 25% the next year (total of 75% memberships sold) and the rest of its memberships the third year (100%) and have full membership until the 6th year. Assume that the interest rate is 10% (See table S7.2 in your textbook).

(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 $3000 upfront, they get a full 6-year membership (i.e. 1 year free). Because of the deal, the memberships fill up from the first year onward. Would it make financial sense to offer this deal?

(c) If you were the owner, would you expand to the new location? Why?

Show all your work and show how you came to your solution. Make sure it is clear how you made your calculations.

*I would ask like to know what steps are needed for the spreadsheet. Thanks.