Questions comes from Case 16 Too Hot To Handle!

1. Develop operating cash flow forecast for the relevant lives of each type of tanning equipment using 100% (Best case), 80% (Mostly Likely Case), and 50% (Worst Case) occupancy estimates for each tanning option. Assume straight line depreciation and a tax rate of 30%.

2. Calculate and comment upon the accounting, cash, and financial break-even sales for the dome unit and the tanning bed unit respectively.

3. Calculate the net present value, payback period, and the traditional IRR for each tanning option under the various scenarios. What do the decision rules indicate?

4. Can Patsy evaluate this business project by assuming just a one-time purchase? Why or why not? What other evaluation methods should Patsy use?

5. If you decide to use the replacement chain method, how do the calculation and decision change?

6. What are some externalities, side effects, and other relevant issues that could affect the decision?

7. Based upon your analysis, which of the two units is