Dome Unit Tanning Bed Cost (including shipping) $7800 $2800 Setup cost $500 $200 Electricity cost per session $0.50 $0.30 Number of sessions/hour 4 3 Number of bulbs needed 48 28 Cost per bulb $22 $22 Bulb life 1300 hours 1300 hours Unit life 8 years 5 years Suggested price/visit $3 $3 Space requirement 9 ft. 5ft, 5ft, 10 ft. 10 ft. room Other income Tanning lotion 1 bottle/10 sessions Profit per sale $5

1. Develop operating cash flow forecasts for the relevant lives of each type of tanning equipment using 100% (best case), 80% (most likely case), and 50% (worst case) occupancy estimates for each tanning option. Assume straight line depreciation and a tax rate of 30%. 2. Calculate and comment upon the accounting, cash, and finan- cial break-even sales for the dome unit and the tanning bed unit. 3. Calculate the net present value, payback period, and the tradi- tional IRR for each tanning option under the various scenarios. What do the decision rules indicate? 4. Can Jenny evaluate this business project by assuming just a one-time purchase? Why or why not? What other evaluation methods should Jenny use? 5. If you decide to use the replacement chain method, how does the calculation and decision change? 6. What are some externalities, side effects, and other relevant issues that could affect the decision? 7. Based upon your analysis, which of the two units is too hot to handle? Why?