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ok t nces Jinny Buffett recently retired as a flight attendant and is interested in opening a fitness center and health spa exclusively for
ok t nces 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 11 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 1,250 square feet and 3,750 square feet available and is willing to sell either unit for CI$125 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 11 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$375 by the time she is ready to sell her unit in 11 years. Exercise machines and other equipment necessary to open the fitness center would cost US$50,000. In addition, US$36,000 would need to be invested in equipment related to the health spa. The useful life for all such equipment is 11 years, and the expected salvage value is not large enough to be concerned about. In addition, US$8,000 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 11-year period and will be given away to loyal customers when Jinny retires permanently. The health spa can be operated in the 1,250-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 3,750-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 3,750- 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
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