The Sales and Marketing Manager has an idea of creating monthly memberships for external visitors that he would like to explore further. He is thinking to create two types of membership options. A Basic Membership which would include access to the gym, sauna and pool and it would cost clients $40 a week. A Full Package Membership would additionally to the access include a one hour weekly session with the in house personal trainer and a dietician consultation once a month. Clients would pay $81 per week for this type of membership.

He believes that an initial investment into promoting the centre would be $35,350 and subsequent cost of continuous promotion would be $808 per month. At the beginning he would like to make the service more exclusive and cap the membership to 20 basic membership clients and 30 full package membership clients. He wants to create a feeling of exclusivity amongst the clients

Based on his calculations he believes offering the membership to the external clients would generate total revenue of $138,000 in the first year increasing by 10% every year after that. The in-house trainer is expected to cost the hotel $5555 per month and the services of dietician additional $1515 per month and both are expected to increase by 4% each year.

REQUIRED

Calculate the net present value of the external membership project over the next 3 years period. Use yearly basis for your calculations. The estimated cost of capital for the hotel is 8%. Assume 30% company tax in Australia when determining the values of the after tax net cash flow for each year. Based on your analysis would you recommend accepting the project and offer the membership to the external clients? Explain the basis for your recommendation