The following information is available:

- Florence has identified a suitable location for her business in a new shopping center in Kingston, capital of Jamaica. The developer has units of 1,750 square feet and 3,500 square feet available and is willing to sell either unit for JA$100 per square foot (JA$1.00 = US$1.25). Alternatively, the space can be leased at a cost of JA$1.80 per square foot per month, on an annual basis.

- Commercial real estate values have more than doubled in Jamaica during the past 11 years, with no slowdown in sight. As a result, Florence is more attracted to the purchase option because she expects the price per square foot to be JA$300 by the time she is ready to sell her unit in 11 years.

- Exercise machines and other equipment necessary to open the Yoga Studio/exercise would cost US$48,000. 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 11 years, and the expected salvage value is not large enough to be concerned about.

- n 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 11-year period and will be given away to loyal customers when Florence retires permanently.

- The health spa can be operated in the 1,750-square-foot unit. Variable operating costs would include JA$0.15 per square foot per month for cleaning and JA$0.40 per square foot per month for utilities. The 3,500-square-foot unit is large enough to operate both the Yoga Studio/exercise and health spa, and the JA$0.15 rate per square foot for cleaning would not change. However, if the 3,500-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 JA$0.60 per square foot per month under this option.

- Florence 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$21,000 per year. Likewise, for the Yoga Studio/exercise, two full-time Yoga Instructors would be hired for US$19,000 each per year, and a physical trainer would be hired for US$32,000 per year.

- Additional fixed costs include US$5,000 per year for advertising and US$4,200 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 Yoga Studio/exercise will be JA$400, and a preliminary market survey shows a demand of approximately 475 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 Yoga Studio/exercise members.

- Health spa fees are assessed on a user basis, although the steam room facilities are available at no charge to Yoga Studio/exercise members. The net cash inflow from cosmetics and skin care products (after deducting the cost of inventory used and sold) is expected to be JA$8,500 per month.

- Florence's cost of capital is 10%, and there are no taxes in Jamaica.

QUESTIONS TO BE ANSWERED:

A) Calculate the net present value in US$ of an investment in the health spa only, assuming that the 1,750-square-foot unit is purchased and then resold at the end of 11 years. (Hint: Before making your present value calculations, multiply all amounts expressed in JA$ by $1.25 to convert into US$.) B) Calculate the net present value in US$ of an investment in the Yoga Studio/exercise and health spa, assuming that the 3,500-square-foot unit is purchased and then resold at the end of 11 years. C) Florence is quite concerned about possible forecasting errors and has asked you to prepare a more conservative estimate. Repeat part b, assuming that the Yoga Studio/exercise attracts only 275 members per year (rather than 475); that the net cash inflow per month from cosmetics and skin care products is only JA$6,500 per month (rather than JA$8,500 per month); and that commercial real estate values in Jamaica the end of 11 years are only JA$200 per square foot (rather than JA$300 per square foot)