Jinny Buffett recently retired as a flight 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, "I see my business going in one of two directions: Either I open the fitness center and health spa all at once, or I start with the health spa and hold off on the fitness center for a while. Either way, it should be a success because women on this island love to be pampered. My only concern about the fitness center is the initial 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 13 years." Table 6-4 and Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.) The following information is available: . Jinny has identified a suitable location for her business in a new shopping center in George Town, capital of the Cayman Islands. The developer has units of 1,500 square feet and 3,250 square feet available and is willing to sell either unit for CI$100 per square foot (CI$1.00 = US$1.25). Alternatively, the space can be leased at a cost of CI$1.8C per square foot per month, on an annual basis. Commercial real estate values have more than doubled in Grand Cayman during the past 13 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 C1$300 by the time she is ready to sell her unit in 13 years. Exercise machines and other equipment necessary to open the fitness center would cost US$47.000. In addition, US$28.000 would need to be invested in equipment related to the health spa. The useful life for all such equipmen is 13 years, and the expected salvage value not large enough 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 13-year period and will be given away to loyal customers when Jinny retires permanently. The health spa can be operated in the 1.500-square-foot unit. Variable operating costs would include Cl$0.10 per square foot per month for cleaning and Ci$0.40 per square foot per month for utilities. The 3,250-square-foot unit is large enough to operate both the fitness center and health spa, and the Ci$0.10 rate per square foot for cleaning would not change. However, if the 3,250-square-foot unit were used, the health spa would be located in an open loft that would need to be air-conditioned at all times. As a result, utility costs are expected to be CISO.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$25.000 per year. Likeviise, for the fitness center, two full-time aerobics instructors would be hired for US$19.000 each per year, and a physical trainer would be hired for US$29.000 per year Additional fixed costs include US$3.000 per year for advertising and US$4,900 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 CIS300. and a preliminary market survey shows a demand of approximately 550 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 will be charged to fitness center members. Health spa fees are assessed on a user basis. although the steam room facilities are available at no charge to fitness center members. The net cash inflow from cosmetics and skin care products fafter deducting the cost of fitness center members. The net cash inflow from cosmetics and skin care products (after deducting the cost of inventory used and sold) is expected to be CI$5.750 per month. Jinny's cost of capital is 12%, and there are no taxes in the Cayman Islands. Required: a. Calculate the net present value in US$ of an investment in the health spa only, assuming that the 1,500-square-foot unit is purchased and then resold at the end of 13 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 spa, assuming that the 3,250-square-foot unit is purchased and then resold at the end of 13 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 350 members per year (rather than 550); that the net cash inflow per month from cosmetics and skin care products is only Cl$3.750 per month (rather than CI$5,750 per month), and that commercial real estate values in Grand Cayman at the end of 13 years are only Ci$200 per square foot (rather than Cl$300 per square foot) d. Choose why it might be in Jinny's best interest to lease (rather than purchase) the 1,500-square-foot unit if she initially decides to open the health spa only. Although no calculations are required. you should consider both quantitative and qualitative factors in your response. Complete this question by entering your answers in the tabs below. Required A Required B Required c Required D Calculate the net present value in Uss of an Investment in the health spa only, assuming that the 1,500-square-foot unit is purchased and then resold at the end of 13 years. (Hint: Before making your present value calculations, multiply all amounts expressed In Ci$ by $1.25 to convert Into USS.) Net present value Required B Required: a. Calculate the net present value in US$ of an investment in the health spa ony, assuming that the 1,500-square-foot unit is purchased and then resold at the end of 13 years. (Hint: Before making your present value calculations, multiply all amounts expressed in Cl$ by $1.25 to convert into US$.) b. Calculate the net present value in US$ of an investment in the fitness center and health spa, assuming that the 3,250-square-foot unit is purchased and then resold at the end of 13 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 350 members per year (rather than 550); that the net cash inflow per month from cosmetics and skin care products is only Cl$3.750 per month (rather than CI$5,750 per month); and that commercial real estate values in Grand Cayman at the end of 13 years are only CI$200 per square foot (rather than Ci$300 per square foot) d. Choose why it might be in Jinny's best interest to lease rather than purchase) the 1,500-square-foot unit if she initially decides to open the health spa only. Although no calculations are required. you should consider both quantitative and qualitative factors in your response. Complete this question by entering your answers in the tabs below. Required A Required Required c Required D Calculate the net present value In Uss of an Investment in the fitness center and health spa, assuming that the 3,250-square foot unit is purchased and then resold at the end of 13 years. Net present Value Discount Rate No. of Periods 0% 0 % 10% 44% 18% 20% 1 2 3 4 0.980 0.961 0.942 0.924 0.906 0.9615 0.9246 0.8890 0.8548 0.8219 0.9434 0.8900 0.8396 0.7921 0.7473 0.9259 0.8573 0.7938 0.7350 0.6806 0.8091 0.8264 0.7513 0.6830 0.6209 0.8929 0.7972 0.7118 0.03305 0.5874 0.8772 0.7695 ; 0.6750 0.5921 0.5194 0.8621 0.7432 0.6407 0.5523 0.4781 0.8475 0.7182 0.6086 0.5158 04371 0.8333 0.6044 0.5787 0.4823 0.4019 5 6 7 0.888 0.871 0.853 0.837 0.520 0.7903 0.7599 0.7307 0.7026 0.8756 0.7050 0.6651 0.6274 0.5919 0.6302 0.5835 0.5403 0.5002 0.4832 0.56,45 0.5132 0.4665 0.4241 0.3855 0.5086 0.4623 0.4009 0.3006 0.3220 0.4566 0.3906 0.8506 0.3075 02697 0.4104 0.3638 0.3050 0.2630 02267 0.3704 03139 0.2880 0 2256 0.1911 0.3349 0.2791 10.2326 0.1938 0.1615 9 10 12 0.804 0.788 0.773 0.758 0.743 0.6246 06006 0.5203 0.4970 0.4688 0.4289 0.3971 0.3677 03405 0352 0.3505 0.3186 012897 02030 0.2394 0.2875 0.2567 0.2202 0.2016 0.1827 02366 0 2076 0 1821 0 1597 021401 0.1619 0.1372 0,1160 0.1685 0.1452 0.1252 0.1079 0.1346 0.1122 0.0935 0.0779 0.0049 0.5553 0.0835 0.728 0 2919 02703 0107B 0.5134 0 1935 0.1631 0.1456 1300 0.1101 0.1978 0.1289 01635 070 0.0930 0.0802 0.0601 0.0506 0.0514 0.0708 0.0600 0.0508 0.0431 0.030 0.0451 010376 2.0313 0.020 0.0029 0.0728 0.0217 2006 226 02618 0443 0:03 0.0329 02 11 9.1016 01708 00338 0560 0.049 O DOS 0.0309 002 0002 2013 000 15751 00246 063 04 10195 0.0573 50 Ford D . 01023 02 DO 02 000 00 QUE CLOCK Discount Rate No. 04 Periods 8% 8% 10% 12% 107 20% 1 2 3 0.980 1.942 2.884 3.808 4.713 0.9615 1.8861 2.7751 3.6299 4.4518 0.9434 1.8334 2.6730 3,4651 4.2124 0.9259 1.7833 2.5771 3.3121 3.9927 0.9091 1.7355 2.4869 3.1699 3.7908 0.8929 1.0001 2.4018 3.0373 3.0048 0.8772 1.6487 2.3216 2.9137 3.4331 0.8821 1.6062 2.2459 2.7982 3.2743 0.8475 1.5658 201743 2.8901 3.1272 0.8333 1.6278 2.1066 2.5887 2.9906 4 5 B 7 3.8847 4.0386 5.601 6.472 7.325 B.162 8.983 B 5.2421 6.0021 6.7327 7.4353 8.1109 4.9173 5.5824 6.2098 6.8017 7.3601 4.6229 5.2064 5.7406 6.2489 6.7101 4.3553 4 3684 5.3349 5.7590 6.1446 4.5638 4.9676 53282 5.6502 3.8837 4 2883 4.6309 4.9464 5.2161 3.4976 3.8115 4.0776 4.3030 3.3256 3.6046 3.8372 4.0310 4.1925 9 4.6065 14,8352 10 11 4.6660 4.3271 12 9.787 10.575 11348 12.106 12 889 8.7805 9.3851 9.9856 10.5631 11-1814 78889 8.3838 3.82 1300 75361 7.9038 B.2442 B.6595 6.4951 0.8137 7 10X34 1967 7661 5.9377 6.1944 6.4235 6.6282 5.4527 5.6603 5.8424 6.0021 5.0286 5.1971 5.3423 4.7202 14.9095 500 5016 4.5027 6105 15 97122 5.5755 4.6755 7 1237 6.2651 5.6685 1296 13:573 1292 14992 15.078 5.16:24 5.222 11.0523 101069 12-1657 104713 12.6593. 10.8276 13 1309 111501 13.5903 11.4899 3.8514 S25 93719 95030 G9740 7196 72497 640 0216 B.2014 30649 25136 19 5.8775 53167 5.3527 98151 6.6221 1166 14 02912 161 6.6870 G 10 0168 100 5.3837 5029 22 13 18 232 20 6.792 14256312 3004 2020 15 02 12 LIKE bede 0.0142 6.0725 21 TE 5.50 20 191523 . 5 22 396 11 MORE 5. 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