Jinny Buffett recently retired as a ight attendant and is interested in opening a tness center and health spa exclusively for women in Grand Cayman, where she resides. Alter 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 tness center and health spa all at once, or I start with the health spa and hold off on the tness 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 tness 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 14 years." Table 6-4 and Table 6-5. {Use appropriate factorfs] from the tables provided. Round the PU factors to 4 decimals.) The following information is available: o Jinny has identied 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 3,750 square feet available and is willing to sell either unit for CI$150 per square foot [Cl$1.0D = 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. o Commercial real estate values have more than doubled in Grand Cayman during the past14 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 Cl$450 by the time she is ready to sell her unit in 14 years. c Exercise machines and other equipment necessary to open the tness center would cost US$47,DOO. In addition. US$24,0GD would need to be invested in equipment related to the health spa. The useful life for all such equipment is 14 years, and the expected salvage value is not large enough to be concerned about. o In addition, US$5,000 would need to be invested in an inventory of cosmetics and skin care products necessary to operate the health spa. This level of inventory would need to be maintained throughout the 14-year period and will be given away to loyal customers when Jinny retires permanently. o The health spa can be operated in the 1.500-square-foot unit. Variable operating costs would include CI$O.20 per square foot per month for cleaning and CI$OAO per square foot per month for utilities. The 3.750-square-foot unit is large enough to operate both the tness center and health spa. and the CI$O2O rate per square foot for cleaning would not change. However, if the 3,750- squarefoot 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 Cl$tl60 per square foot per month under this option. 0 Jinny is a certied 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 year. Likewise. for the tness center, two full-time aerobics instructors would be hired for US$19,0GD each per year, and a physical trainer would be hired for US$33.000 per year. a. Calculate the net present value in US$ of an investment in the health spa om}; assuming that the 1,500squarefoot unit is purchased and then resold at the end of 14 years. {Hint Before making your present value calculations, multiply all amounts expressed in Cl$ by $1.25 to convert into U535.) b. Calculate the net present value in US$ of an investment in the tness center and health spa, assuming that the 3,?50-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 tness center attracts only 325 members per year {rather than 525]; that the net cash inow per month from cosmetics and skin care products is only 0134.500 per month {rather than Cl$6.500 per month]; and that commercial real estate values in Grand Cayman at the end of 14 years are only CI$200 per square foot (rather than Cl$450 per square foot} d. Choose why it might be in Jinny's best interest to lease {rather than purchase) the 1,500-square-foot unit if she initially decides to open the health spa only. Although no calculations are required, you should consider both quantitative and qualitative factors in your response. Complete this question by enterlng your answers In the tall! below. Required A Required B Required C Required D Calculate the net present value in US$ of an Investment In the health spa only, assuming that the 1,500-square-foot unit ls purchased and then resold at the end of 14 years. (Hint: Before making your pment value calculations, multiply all amounts expressed in CI$ by $1.25 to convert Into U3.) _:| Required: a. Calculate the net present value in US$ 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 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 spa, assuming that the 3,750-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 325 members per year (rather than 525); that the net cash inflow per month from cosmetics and skin care products is only CI$4,500 per month (rather than CI$6,500 per month); and that commercial real estate values in Grand Cayman at the end of 14 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 1,500-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 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. (Select all that apply) By leasing, her initial investment cost would be reduced to only US$30,000 because the real estate cost of CI$225,000 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 ownership rights. Leasing will increase the profitability of health spa.TABLE 6.4 FACTORS FOR CALCULATING THE PRESENT VALUE OF $1 Discount Rate No. of Periods 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 0.980 0.9615 0.9434 0.9259 0.9091 0.8929 0.8772 0.8621 0.8475 0.8333 0.961 0.9246 0.8900 0.8573 0.8264 0.7972 0.7695 0.7432 0.7182 0.6944 & CON 0.942 0.8890 0.8396 0.7938 0.7513 0.7118 0.6750 0.6407 0.6086 0.5787 0.924 0.8548 0.7921 0.7350 0.6830 0.6355 0.5921 0.5523 0.5158 0.4823 5 0.906 0.8219 0.7473 0.6806 0.6209 0.5674 0.5194 0.4761 0.4371 0.4019 0.888 0.7903 0.7050 0.6302 0.5645 0.5066 0.4556 0.4104 0.3704 0.3349 0.871 0.7599 0.6651 0.5835 0.5132 0.4523 0.3996 0.3538 0.3139 0.2791 0.853 0.7307 0.6274 0.5403 0.4665 0.4039 0.3506 0.3050 0.2660 0.2326 0.837 0.7026 0.5919 0.5002 0.4241 0.3606 0.3075 0.2630 0.2255 0. 1938 10 0.820 0.6756 0.5584 0.4632 0.3855 0.3220 0.2697 0.2267 0.1911 0. 1615 11 0.804 0.6496 0.5268 0.4289 0.3505 0.2875 0.2366 0.1954 0.1619 0.1346 12 0.788 0.6246 0.4970 0.3971 0.3186 0.2567 0.2076 0.1685 0.1372 0.1122 13 0.773 0.6006 0.4688 0.3677 0.2897 0.2292 0. 1821 0.1452 0.1163 0.0935 14 0.758 0.5775 0.4423 0.3405 0.2633 0.2046 0.1597 0.1252 0.0985 0.0779 15 0.743 0.5553 0.4173 0.3152 0.2394 0.1827 0.1401 0.1079 0.0835 0.0649 16 0.728 0.5339 0.3936 0.2919 0.2176 0.1631 0.1229 0.0930 0.0708 0.0541 17 0.714 0.5134 0.3714 0.2703 0.1978 0.1456 0.1078 0.0802 0.0600 0.0451 18 0.700 0.4936 0.3503 0.2502 0.1799 0.1300 0.0946 0.0691 0.0508 0.0376 19 0.686 0.4746 0.3305 0.2317 0.1635 0.1161 0.0829 0.0596 0.0431 0.0313 20 0.673 0.4564 0.3118 0.2145 0.1486 0.1037 0.0728 0.0514 0.0365 0.0261 21 0.660 0.4388 0.2942 0. 1987 0.1351 0.0926 0.0638 0.0443 0.0309 0.0217 22 0.647 0.4220 0.2775 0.1839 0.1228 0.0826 0.0560 0.0382 0.0262 0.0181 23 0.634 0.4057 0.2618 0.1703 0.1117 0.0738 0.0491 0.0329 0.0222 0.0151 24 0.622 0.3901 0.2470 0.1577 0.1015 0.0659 0.0431 0.0284 0.0188 0.0126 25 0.610 0.3751 0.2330 0.1460 0.0923 0.0588 0.0378 0.0245 0.0160 0.0105 30 0.552 0.3083 0.1741 0.0994 0.0573 0.0334 0.0196 0.0116 0.0070 0.0042 35 0.500 0.2534 0.1301 0.0676 0.0356 0.0189 0.0102 0.0055 0.0030 0.0017 40 0.453 0.2083 0.0972 0.0460 0.0221 0.0107 0.0053 0.0026 0.0013 0.0007 45 0.410 0.1712 0.0727 0.0313 0.0137 0.0061 0.0027 0.0013 0.0006 0.0003 50 0.372 0.1407 0.0543 0.0213 0.0085 0.0035 0.0014 0.0006 0.0003 0.0001TABLE 6.5 FACTORS FOR CALCULATING THE PRESENT VALUE OF AN ANNUITY OF $1 Discount Rate No. of Periods 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 0.980 0.9615 0.9434 0.9259 0.9091 0.8929 0.8772 0.8621 0.8475 0.8333 1.942 1.8861 1.8334 1.7833 1.7355 1.6901 1.6467 1.6052 1.5656 1.5278 2.884 2.7751 2.6730 2.5771 2.4869 2.4018 2.3216 2.2459 2.1743 2.1065 3.808 3.6299 3.4651 3.3121 3.1699 3.0373 2.9137 2.7982 2.6901 2.5887 4.713 4.4518 4.2124 3.9927 3.7908 3.6048 3.4331 3.2743 3.1272 2.9906 5.601 5.2421 4.9173 4.6229 4.3553 4.1114 3.8887 3.6847 3.4976 3.3255 6.472 6.0021 5.5824 5.2064 4.8684 4.5638 4.2883 4.0386 3.8115 3.6046 7.325 6.7327 6.2098 5.7466 5.3349 4.9676 4.6389 4.3436 4.0776 3.8372 9 8.162 7.4353 6.8017 6.2469 5.7590 5.3282 4.9464 4.6065 4.3030 4.0310 10 8.983 8.1109 7.3601 6.7101 6.1446 5.6502 5.2161 4.8332 4.4941 4.1925 11 9.787 8.7605 7.8869 7.1390 6.4951 5.9377 5.4527 5.0286 4.6560 4.3271 12 10.575 9.3851 8.3838 7.5361 6.8137 6.1944 5.6603 5.1971 4.7932 4.4392 13 11.348 9.9856 8.8527 7.9038 7.1034 6.4235 5.8424 5.3423 4.9095 4.5327 14 12.106 10.5631 9.2950 8.2442 7.3667 6.6282 6.0021 5.4675 5.0081 4.6106 15 12.849 11.1184 9.7122 8.5595 7.6061 6.8109 6.1422 5.5755 5.0916 4.6755 16 13.578 11.6523 10.1059 8.8514 7.8237 6.9740 6.2651 5.6685 5.1624 4.7296 17 14.292 12.1657 10.4773 9.1216 8.0216 7.1196 6.3729 5.7487 5.2223 4.7746 18 14.992 12.6593 10.8276 9.3719 8.2014 7.2497 6.4674 5.8178 5.2732 4.8122 19 15.678 13.1339 11.1581 9.6036 8.3649 7.3658 6.5504 5.8775 5.3162 4.8435 20 16.351 13.5903 11.4699 9.8181 8.5136 7.4694 6.6231 5.9288 5.3527 4.8696 21 17.011 14.0292 11.7641 10.0168 8.6487 7.5620 6.6870 5.9731 5.3837 4.8913 22 17.658 14.4511 12.0416 10.2007 8.7715 7.6446 6.7429 6.0113 5.4099 4.9094 23 18.292 14.8568 12.3034 10.3711 8.8832 7.7184 6.7921 6.0442 5.4321 4.9245 24 18.914 15.2470 12.5504 10.5288 8.9847 7.7843 6.8351 6.0726 5.4509 4.9371 25 19.523 15.6221 12.7834 10.6748 9.0770 7.8431 6.8729 6.0971 5.4669 4.9476 30 22.396 17.2920 13.7648 11.2578 9.4269 8.0552 7.0027 6.1772 5.5168 4.9789 35 24.999 18.6646 14.4982 11.6546 9.6442 8.1755 7.0700 6.2153 5.5386 4.9915 40 27.355 19.7928 15.0463 11.9246 9.7791 8.2438 7.1050 6.2335 5.5482 4.9966 45 29.490 20.7200 15.4558 12.1084 9.8628 8.2825 7.1232 6.2421 5.5523 4.9986 50 31.424 21.4822 15.7619 12.2335 9.9148 8.3045 7.1327 6.2463 5.5541 4.9995