Congratulations! You were recently appointed as Regional Director for a health and fitness club that operates ten facilities in your area. You are thrilled about this appointment! To get to know the needs of each facility, you decide to have a retreat with the managers of each facility. During this retreat, three facility managers propose you invest in capital projects at their respective facilities. Below are the proposals:

• The Woodcrest facility is requesting $10,000 to install hydro-based massage chairs. The manager estimates the new massage chairs will produce revenues of $3,000 per year for 5 years.
• The Terra-Belle facility is requesting $20,000 to renovate the group fitness area. The manager indicates the facility expects to receive an additional $6,300 per year for the next 5 years due to the renovations.
• The Hoover facility is requesting $60,000 to construct and install an indoor swimming pool. The manager estimates new pool will produce the following revenues over the first 5 years, respectively: $15,000, $15,000, $20,000, $20,000, and $10,000.

Cost of capital is 7%.

Task 1

Evaluate each facility request using the capital budgeting techniques below.

• Payback Period (report answer in number of years)
• Discount Payback Period (report answer in number of years)
• Net Present Value (NPV) (report answer in dollars, rounded to two decimals)
• Internal Rate of Return (report answer in percentage, rounded to two decimals)
• Modified Internal Rate of Return (report answer in percentage, rounded to two decimals)

Task 2

Answer the following questions:

• If the projects are independent, which would you select? Why? Be sure to use capital budgeting to explain and support your position.
• If the projects are mutually exclusive, which would you select? Why? Be sure to use capital budgeting to explain and support your position.
• What additional information do you believe is needed beyond the capital budgeting outputs in order to make the most optimal decision?