Task
Decision Tree Analysis
You are going to open a private gym in Chantilly, Virginia. Your idea is to provide fitness service for women only, but including men in not out of the realm of possibility. The cost and time to have the building owner build-out the facility is one month and $80,000. If you do the work yourself, the owner of the building will give you break on your rent but it will take you four months to complete the work. Self build option rent is free for the first year and then 10K monthly. Equipment costs $10,000 and was financed at a rate for 5% for 5 years. If you choose to include childcare, you have additional start up equipment costs of $1000. Utilities are included in the rent. Rent with build-out = $25,000. Rent with self build-out option is $16,000 but first 12 months free. Self build-out costs were 80K.
Important Information
Expect stable revenue in the form of annual membership fee at $90/monthly for 300 members.
An expected attrition rate of membership of 5%.
New membership join rate of 12% annually.
Private training revenue of $1800/monthly.
Special class revenue (Pilates, Barre, other) expected to be $180/month. The instructor cost is $120/month.
Option to hold special events can yield $150 monthly (Friday night happy hour workouts, Valentine’s workouts, New Year’s Day workouts, etc.).
Insurance fees – 2% annually.
Monthly childcare costs $10/hour paid by the client for 6 hours a week. $20/month is added to membership if the client wants childcare. However, if you do not provide childcare, your market is decreased by at least 30%.
Monthly salaries for trainers – $1000/month. Owner taught classes equivalent of 4 trainers.
Additional costs include
o Accounting = $100/month
o Advertising = $50/month
o Insurance = $3,000/year, if no childcare option, insurance = $2000/year
o Legal = $500 in the first month
o General Office Supplies = $100/month (owner does own cleaning)
o Telephone = $100/month
o Utilities = included in rent
o Website = $25/month
Owner Draw = $1,000/month in the first year then $2,000 and $3,000/month in year 2
and 3 respectively.
Requirements for the Decision Tress Analysis
- Create the decision tree of alternative that includes at least 2-step deep chain of actions and events (as presented in the DecisionTrees for Decision Making. )
- Include risk, financial data using real data. Note your sources of data.
- Include annual payouts for the decision tree. This should include at least five years of a forecast.
- Conduct an economic analysis to include, market demand, costs, production, market
structure.
- Choose a course of action and defend.
- What is the payback period?
- Note assumptions in your model as well as risks that would significantly impact the
decision tree and warrant a revision of the decision tree.
Criteria
Consult at least three academic sources for your paper. Other sources are allowable but be mindful of source credibility. Steer clear from politically-connected sources. List all sources in your reference list.
In your paper, provide a citation for at least three of your sources. Accurately document citations and references in current APA style.
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