Jinny Buffett recently retired as a fight attendant and is interested in opening a fitness center and health spa exclusively for women in Grand Cayman, where she resides. After careful study, she is somewhat puzzled as to how to proceed. In her words, see my business going in one of two directions: Either I open the fitness center and health spa al at once, or I start with the health spa and hoid off on the fitness center for a while. Either way, it should be a success because women on this island iove to be pampered. My only concern about the fitness center is the inital cost, but if the projections look good enough, I know some investors in Phoenix who can help me get started. in any event, I plan to retire permanently in 14 years. "Table 6-4 and Table 6-5. Note: Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals. The following information is avallable: - Jinny has identified a suitable location for her business in a new shopping center in George Town, capital of the Cayman Isiands. The developer has units of 1,000 square feet and 2,750 square feet avallable and is willing to sell either unit for Ci\$175 per square foot (CI $1.00 = US\$125). Alternatively, the space can be leased at a cost of CI\$1.80 per square foot per month, on an annual basis. - Commercial real estate values have more than doubled in Grand Cayman during the past 14 years, with no slowdown in sight. As a result, Jinny is more attracted to the purchase option because she expects the price per square foot to be Cis525 by the time she is ready to sell her unit in 14 years. - Exercise machines and other equipment necessary to open the fitness center would cost US\$48,000, in addition, US 536,000 would need to be invested in equipment related to the heath spa. The useful life for all such equipment is 14 years, and the expected salvage value is not large endigh to be concerned about. - In addition, US\$7,500 would need to be invested in an inventory of cosmetics and skin care products necessary to operate the health spa. This level of inventory would need to be maintained throughout the 14 -year period and will be given away to loyal customers when Jinny retires permanently. - The health spa can be operated in the 1,000-square-foot unit. Variable operating costs would include cis 0.20 per square foot per month for cleaning and Cis0.40 per square foot per month for utilities. The 2,750-square-foot unit is large enough to operate both the fitness center and health spa, and the Cis0.20 rate per square foot for cleaning would not change. However, if the 2,750square-foot unit were used, the heolth spo would be located in an open loft that would need to be air-conditioned at all times. As a result, vility costs are expected to be Cis0.60 per square foot per month under this option. - Jinny is a certified aesthetician and expects to do most of the makeovers, facials, and peels herself, but she needs a qualified assistant for the health spa. She estimates that hiring an appropriate person will cost US\$23.000 per yeac. Likewise, for the fitness center, two fult-ime aerobics instructors would be hired for US\$21.000 each per year, and a physlical trainer would be hired for us\$31,000 per year, - Additional ficed costs include US\$4,000 per year for advertising and U5\$4,700 per year for maintenance, insurance, and other items. These costs will be incurred without respect to the size of operations. - Annual membership fees to the fitness center will be Cis350, and a preliminary market survey shows a demand of approximately 425 initial members, Although members tend to come and go, the net change in membership from year to year is not expected to be significant. No additional fees wis be charged to fitness center members. - Health spa fees are assessed on a user bask, athough the steam room facilities are avalable at no charge to fitness center members. The net cash infliow from cosmetics and skin care products (afier deducting the cost of inventory used and sold) is expected to be Cis6,250 per month. - Jinnys cost of capital is 100 , and there are no taxes in the Cayman islands. Required: a. Calculate the net present value in US\$ of an investment in the health 5pa only, assuming that the 1,000 - 5quarefo0t unit is purchased and then resold at the end of 14 years. (Hint: Before making your present value calculations, multiply all amounts expressed in CI\$ by $1.25 to convert into US\$.) b. Calculate the net present value in US\$ of an investment in the fitness center and health 5pa, assuming that the 2,750 square-foot unit is purchased and then resold at the end of 14 years. c. Jinny is quite concerned about possible forecasting errors and has asked you to prepare a more conservative estimate. Repeat part. b, assuming that the fitness center attracts only 225 members per year (rather than 425 ); that the net cash inflow per month from cosmetics and skin care products is only CIS4,250 per month (rather than CI\$6,250 per month); and that commercial real estate values in Grand Cayman at the end of 14 years are only Cl\$200 per square foot (rather than Cl\$525 per 5quarefoot) d. Choose why it might be in Jinny's best fipterest to lease (rather than purchase) the 1,000-5quare-foot unit if she initially decides to open the health spa only. Although no chiculations are required, you should consider both quantitative and qualitative factors in your response. Complete this question by entering your answers in the tabs below. Calculate the net present value in USS of an investment in the health spa only, assuming that the 1,000squarefoot unit is purchased and then resold at the end of 14 years. (Hint: Before making your present value calculations, multiply all amounts expressed in Cls by $1.25 to convert into USs.)