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Imaging that you are operating a chain of GYMS in Valencia and you are looking at 2 (two) options to increase revenue across your GYM chain. The estimated impact of the 2 (two) options on result (*) in year 1 and one-off associated costs of each option are given in the table below. Launch Loyalty Card € 100,000 Cut Prices € 150,000 Cost of option (one off cost) Probability of high GYM attendance 0.55 0.75 Probability of low GYM attendance Result (*) of high GYM attendance 0.45 0.25 € 850,000 € 250,000 € 800,000 Result (*) of low GYM attendance € 250,000 In addition, you have been told by your accounting department that the cost

Imaging that you are operating a chain of GYMS in Valencia and you are looking at 2 (two) options to increase revenue across your GYM chain. The estimated impact of the 2 (two) options on result (*) in year 1 and one-off associated costs of each option are given in the table below. Launch Loyalty Card € 100,000 Cut Prices € 150,000 Cost of option (one off cost) Probability of high GYM attendance 0.55 0.75 Probability of low GYM attendance Result (*) of high GYM attendance 0.45 0.25 € 850,000 € 250,000 € 800,000 Result (*) of low GYM attendance € 250,000 In addition, you have been told by your accounting department that the cost

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter7: Using Consumer Loans
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Problem 3FPE: Evaluating financing packages. Assume that you’ve been shopping for a new car and intend to finance...
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Based on the information provided above which option should you take if any? Explain.

 

Note:
(*) Result = sales - costs. These costs do not include the cost of an option. (**) You can ́t launch loyalty card and cut prices at the same time.

Imaging that you are operating a chain of GYMS in Valencia and you are looking at 2 (two) options to increase revenue across your GYM chain. The estimated impact of the 2 (two) options on result (*) in year 1 and one-off associated costs of each option are given in the table below. Launch Loyalty Card € 100,000 Cut Prices € 150,000 Cost of option (one off cost) Probability of high GYM attendance Probability of low GYM attendance Result (*) of high GYM attendance 0.55 0.75 0.45 0.25 € 850,000 € 800,000 € 250,000 Result (*) of low GYM attendance € 250,000 In addition, you have been told by your accounting department that the cost of capital is 10%. Assume that costs of an option are incurred at the beginning of the year and results are achieved at the end of the year.
Transcribed Image Text:Imaging that you are operating a chain of GYMS in Valencia and you are looking at 2 (two) options to increase revenue across your GYM chain. The estimated impact of the 2 (two) options on result (*) in year 1 and one-off associated costs of each option are given in the table below. Launch Loyalty Card € 100,000 Cut Prices € 150,000 Cost of option (one off cost) Probability of high GYM attendance Probability of low GYM attendance Result (*) of high GYM attendance 0.55 0.75 0.45 0.25 € 850,000 € 800,000 € 250,000 Result (*) of low GYM attendance € 250,000 In addition, you have been told by your accounting department that the cost of capital is 10%. Assume that costs of an option are incurred at the beginning of the year and results are achieved at the end of the year.
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