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 12 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 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 1,000 square feet and 3,000 square feet available and is willing to sell either unit for CI$150 per square foot (CI$1.00 = US$1.25). 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 12 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 CI$450 by the time she is ready to sell her unit in 12 years.

Exercise machines and other equipment necessary to open the fitness center would cost US$36,000. In addition, US$39,000 would need to be invested in equipment related to the health spa. The useful life for all such equipment is 12 years, and the expected salvage value is not large enough to be concerned about.

In addition, US$9,500 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 12-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 CI$0.20 per square foot per month for cleaning and CI$0.40 per square foot per month for utilities. The 3,000-square-foot unit is large enough to operate both the fitness center and health spa, and the CI$0.20 rate per square foot for cleaning would not change. However, if the 3,000-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 CI$0.60 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. Likewise, for the fitness center, two full-time aerobics instructors would be hired for US$21,000 each per year, and a physical trainer would be hired for US$32,000 per year.

Additional fixed costs include US$3,500 per year for advertising and US$4,000 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 CI$250, and a preliminary market survey shows a demand of approximately 450 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 (after deducting the cost of inventory used and sold) is expected to be CI$8,250 per month.

Jinny's cost of capital is 10%, and there are no taxes in the Cayman Islands.

Required:

Calculate the net present value in US$ of an investment in the health spa only, assuming that the 1,000-square-foot unit is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed in CI$ by $1.25 to convert into US$.)

Calculate the net present value in US$ of an investment in the fitness center and health spa, assuming that the 3,000-square-foot unit is purchased and then resold at the end of 12 years.

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 250 members per year (rather than 450); that the net cash inflow per month from cosmetics and skin care products is only CI$6,250 per month (rather than CI$8,250 per month); and that commercial real estate values in Grand Cayman at the end of 12 years are only CI$200 per square foot (rather than CI$450 per square foot)

Choose why it might be in Jinny's best interest to lease (rather than purchase) the 1,000-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.

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 directlons: Elther 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. Elther way, It should be a success because women on this Island love to be pampered. My only concern about the fitness center is the Initlal 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 12 years." Table 64 and table 6-5. Note: Use approprlate factor(s) from the tables provided. Round the PV factors to 4 decimals. The following information is available: - Jinny has identified a sultable location for her business in a new shopping center in George Town, capital of the Cayman Islands. The developer has units of 1,000 square feet and 3,000 square feet avallable and is willing to sell elther unit for CI\$150 per square foot (CI$1.00=US$1.25). Alternatively, the space can be leased at a cost of Cl\$1.80 per square foot per month, on an annual basis. - Commerclal real estate values have more than doubled In Grand Cayman during the past 12 years, with no slowdown In slght. As a result, Jinny Is more attracted to the purchase option because she expects the price per square foot to be CI\$450 by the time she Is ready to sell her unit In 12 years. - Exercise machines and other equipment necessary to open the fitness center would cost US $36,000. In addition, US $39,000 would need to be Invested In equipment related to the health spa. The useful Iffe for all such equipment is 12 years, and the expected salvage value is not large enough to be concerned about. - In addition, US\$9,500 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 12-year perlod 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. Varlable operating costs would Include CI\$0.20 per square foot per month for cleaning and CI$0.40 per square foot per month for utilitles. The 3,000 -square-foot unit is large enough to operate both the fitness center and health spa, and the Cl\$0.20 rate per square foot for cleaning would not change. However, If the 3,000 - 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, utillty costs are expected to be Cl\$0.60 per square foot per month under this option. - Jinny is a certified aesthetician and expects to do most of the makeovers, faclals, and peels herself, but she needs a qualffied assistant for the health spa. She estimates that hiring an approprlate person will cost US $25,000 per year. LIkewIse, for the fitness center, two full-time aerobics Instructors would be hired for US $21,000 each per year, and a physical trainer would be hired for US\$32,000 per year. - Additional fixed costs Include US\$3,500 per year for advertising and US\$4,000 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 Cl$250, and a preliminary market survey shows a demand of approximately 450 Initlal 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 avallable at no charge to 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 $8,250 per month. - Jinny's cost of capital is 10%, 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 1,000-square-foot unit Is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed In CIS 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 3,000-square-foot unit is purchased and then resold at the end of 12 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 250 members per year (rather than 450 ); that the net cash Inflow per month from cosmetics and skin care products is only CI\$6,250 per month (rather than Cl$8,250 per month); and that commerclal real estate values In Grand Cayman at the end of 12 years are only CI$200 per square foot (rather than Cl\$450 per square foot) d. Choose why It might be In Jinny's best Interest to lease (rather than purchase) the 1,000 -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. Calculate the net present value in US\$ of an investment in the health spa only, assuming that the 1,000-square-foot unit is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed in CI\$ by $1.25 to convert into US\$.) Requlred: a. Calculate the net present value In US\$ of an Investment In the health spa only, assuming that the 1,000 -square-foot unit Is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed In Cl$ 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 3,000 -square-foot unit is purchased and then resold at the end of 12 years. c. Jinny Is quite concerned about possible forecasting errors and has asked you to prepare a more conservative estimate. Repeat par b, assuming that the fitness center attracts only 250 members per year (rather than 450 ); that the net cash Inflow per month from cosmetics and skin care products is only CI\$6,250 per month (rather than Cl$8,250 per month); and that commerclal real estate values In Grand Cayman at the end of 12 years are only Cl$200 per square foot (rather than Cl\$450 per square foot) d. Choose why It might be In Jinny's best Interest to lease (rather than purchase) the 1,000squarefoot unit if she Initlally 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. Calculate the net present value in US\$ of an investment in the fitness center and health spa, assuming that the 3,000-squarefoot unit is purchased and then resold at the end of 12 years. Requlred: a. Calculate the net present value In US\$ of an Investment In the health spa only, assuming that the 1,000-square-foot unit Is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed in CIS 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 3,000 -square-foot unit is purchased and then resold at the end of 12 years. c. Jinny is quite concerned about possible forecasting errors and has asked you to prepare a more conservative estimate. Repeat pat b, assuming that the fitness center attracts only 250 members per year (rather than 450 ); that the net cash Inflow per month from cosmetics and skin care products Is only CI\$6,250 per month (rather than CI$8,250 per month); and that commerclal real estate values in Grand Cayman at the end of 12 years are only Cl$200 per square foot (rather than Cl$450 per square foot) d. Choose why It might be In Jinny's best Interest to lease (rather than purchase) the 1,000 -square-foot unit If she Initlally 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. 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 250 members per year (rather than 450 ); that the net cash inflow per month from cosmetics and skin care products is only CI $6,250 per month (rather than CI $8,250 per month); and that commercial real estate values in Grand Cayman at the end of 12 years are only CI $200 per square foot (rather than CI\$450 per square foot) Note: Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Required: a. Calculate the net present value in US\$ of an Investment In the health spa only, assuming that the 1,000-square-foot unit Is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed In CIS 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 3,000 -square-foot unit is purchased and then resold at the end of 12 years. c. Jinny is quite concerned about possible forecasting errors and has asked you to prepare a more conservative estimate. Repeat par b, assuming that the fitness center attracts only 250 members per year (rather than 450 ); that the net cash Inflow per month from cosmetics and skin care products Is only CI\$6,250 per month (rather than Cl$8,250 per month); and that commerclal real estate values In Grand Cayman at the end of 12 years are only CI $200 per square foot (rather than CI $450 per square foot) d. Choose why It might be In Jinny's best Interest to lease (rather than purchase) the 1,000-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. Choose why it might be in Jinny's best interest to lease (rather than purchase) the 1,000-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. Note: Select all that apply Show less a By leasing, her initial investment cost would be reduced to only USS48,500 because the real estate cost of CI\$150,000 would be eliminated. This would allow her to get started with less business risk and she would maintain flexibility in terms of her desire to open the fitness center/ health spa in one location in the future. By leasing on an annual basis, she will have plenty of time to search for the most suitable location for the combined business, and will not face the possibility of having to run her business out of two locations. Leasing will give her ovnership rights. Leasing will increase the profitability of health spa. 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 directlons: Elther 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. Elther way, It should be a success because women on this Island love to be pampered. My only concern about the fitness center is the Initlal 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 12 years." Table 64 and table 6-5. Note: Use approprlate factor(s) from the tables provided. Round the PV factors to 4 decimals. The following information is available: - Jinny has identified a sultable location for her business in a new shopping center in George Town, capital of the Cayman Islands. The developer has units of 1,000 square feet and 3,000 square feet avallable and is willing to sell elther unit for CI\$150 per square foot (CI$1.00=US$1.25). Alternatively, the space can be leased at a cost of Cl\$1.80 per square foot per month, on an annual basis. - Commerclal real estate values have more than doubled In Grand Cayman during the past 12 years, with no slowdown In slght. As a result, Jinny Is more attracted to the purchase option because she expects the price per square foot to be CI\$450 by the time she Is ready to sell her unit In 12 years. - Exercise machines and other equipment necessary to open the fitness center would cost US $36,000. In addition, US $39,000 would need to be Invested In equipment related to the health spa. The useful Iffe for all such equipment is 12 years, and the expected salvage value is not large enough to be concerned about. - In addition, US\$9,500 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 12-year perlod 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. Varlable operating costs would Include CI\$0.20 per square foot per month for cleaning and CI$0.40 per square foot per month for utilitles. The 3,000 -square-foot unit is large enough to operate both the fitness center and health spa, and the Cl\$0.20 rate per square foot for cleaning would not change. However, If the 3,000 - 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, utillty costs are expected to be Cl\$0.60 per square foot per month under this option. - Jinny is a certified aesthetician and expects to do most of the makeovers, faclals, and peels herself, but she needs a qualffied assistant for the health spa. She estimates that hiring an approprlate person will cost US $25,000 per year. LIkewIse, for the fitness center, two full-time aerobics Instructors would be hired for US $21,000 each per year, and a physical trainer would be hired for US\$32,000 per year. - Additional fixed costs Include US\$3,500 per year for advertising and US\$4,000 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 Cl$250, and a preliminary market survey shows a demand of approximately 450 Initlal 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 avallable at no charge to 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 $8,250 per month. - Jinny's cost of capital is 10%, 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 1,000-square-foot unit Is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed In CIS 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 3,000-square-foot unit is purchased and then resold at the end of 12 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 250 members per year (rather than 450 ); that the net cash Inflow per month from cosmetics and skin care products is only CI\$6,250 per month (rather than Cl$8,250 per month); and that commerclal real estate values In Grand Cayman at the end of 12 years are only CI$200 per square foot (rather than Cl\$450 per square foot) d. Choose why It might be In Jinny's best Interest to lease (rather than purchase) the 1,000 -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. Calculate the net present value in US\$ of an investment in the health spa only, assuming that the 1,000-square-foot unit is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed in CI\$ by $1.25 to convert into US\$.) Requlred: a. Calculate the net present value In US\$ of an Investment In the health spa only, assuming that the 1,000 -square-foot unit Is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed In Cl$ 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 3,000 -square-foot unit is purchased and then resold at the end of 12 years. c. Jinny Is quite concerned about possible forecasting errors and has asked you to prepare a more conservative estimate. Repeat par b, assuming that the fitness center attracts only 250 members per year (rather than 450 ); that the net cash Inflow per month from cosmetics and skin care products is only CI\$6,250 per month (rather than Cl$8,250 per month); and that commerclal real estate values In Grand Cayman at the end of 12 years are only Cl$200 per square foot (rather than Cl\$450 per square foot) d. Choose why It might be In Jinny's best Interest to lease (rather than purchase) the 1,000squarefoot unit if she Initlally 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. Calculate the net present value in US\$ of an investment in the fitness center and health spa, assuming that the 3,000-squarefoot unit is purchased and then resold at the end of 12 years. Requlred: a. Calculate the net present value In US\$ of an Investment In the health spa only, assuming that the 1,000-square-foot unit Is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed in CIS 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 3,000 -square-foot unit is purchased and then resold at the end of 12 years. c. Jinny is quite concerned about possible forecasting errors and has asked you to prepare a more conservative estimate. Repeat pat b, assuming that the fitness center attracts only 250 members per year (rather than 450 ); that the net cash Inflow per month from cosmetics and skin care products Is only CI\$6,250 per month (rather than CI$8,250 per month); and that commerclal real estate values in Grand Cayman at the end of 12 years are only Cl$200 per square foot (rather than Cl$450 per square foot) d. Choose why It might be In Jinny's best Interest to lease (rather than purchase) the 1,000 -square-foot unit If she Initlally 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. 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 250 members per year (rather than 450 ); that the net cash inflow per month from cosmetics and skin care products is only CI $6,250 per month (rather than CI $8,250 per month); and that commercial real estate values in Grand Cayman at the end of 12 years are only CI $200 per square foot (rather than CI\$450 per square foot) Note: Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Required: a. Calculate the net present value in US\$ of an Investment In the health spa only, assuming that the 1,000-square-foot unit Is purchased and then resold at the end of 12 years. (Hint: Before making your present value calculations, multiply all amounts expressed In CIS 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 3,000 -square-foot unit is purchased and then resold at the end of 12 years. c. Jinny is quite concerned about possible forecasting errors and has asked you to prepare a more conservative estimate. Repeat par b, assuming that the fitness center attracts only 250 members per year (rather than 450 ); that the net cash Inflow per month from cosmetics and skin care products Is only CI\$6,250 per month (rather than Cl$8,250 per month); and that commerclal real estate values In Grand Cayman at the end of 12 years are only CI $200 per square foot (rather than CI $450 per square foot) d. Choose why It might be In Jinny's best Interest to lease (rather than purchase) the 1,000-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. Choose why it might be in Jinny's best interest to lease (rather than purchase) the 1,000-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. Note: Select all that apply Show less a By leasing, her initial investment cost would be reduced to only USS48,500 because the real estate cost of CI\$150,000 would be eliminated. This would allow her to get started with less business risk and she would maintain flexibility in terms of her desire to open the fitness center/ health spa in one location in the future. By leasing on an annual basis, she will have plenty of time to search for the most suitable location for the combined business, and will not face the possibility of having to run her business out of two locations. Leasing will give her ovnership rights. Leasing will increase the profitability of health spa