Bold’s Gym, a health club chain, is consider-ing expanding into a new location: the initial investment would be $1 million in equipment, renovation, and a 6-year lease, andits annual upkeep and expenses would be $75,000 (paid at thebeginning of the year). Its planning horizon is 6 years out, andat the end, it can sell the equipment for $50,000. Club capacityis 500 members who would pay an annual fee of $600. Bold’sexpects to have no problems filling membership slots. Assumethat the interest rate is 10%. (See Table S7.2 .)a) What is the present value profit/loss of the deal? b) The club is considering offering a special deal to the mem-bers in the first year. For $3,000 upfront they get a full 6-year membership (i.e., 1 year free). Would it make financial sense tooffer this deal?
Bold’s Gym, a health club chain, is consider-
ing expanding into a new location: the initial investment would
be $1 million in equipment, renovation, and a 6-year lease, and
its annual upkeep and expenses would be $75,000 (paid at the
beginning of the year). Its planning horizon is 6 years out, and
at the end, it can sell the equipment for $50,000. Club capacity
is 500 members who would pay an annual fee of $600. Bold’s
expects to have no problems filling membership slots. Assume
that the interest rate is 10%. (See Table S7.2 .)
a) What is the present value
b) The club is considering offering a special deal to the mem-
bers in the first year. For $3,000 upfront they get a full 6-year
membership (i.e., 1 year free). Would it make financial sense to
offer this deal?
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