Hi Tutor
Fit Co owns and runs two local sports club. Last year the largest club made sales of $500,000 but as member numbers are declining they are thinking about refurbishing the gym and upgrading the equipment.
The expected costs and benefits of the refurbishment are as follows:
(i) New fitness equipment would cost $450,000 to buy and install. This includes a refurbishment of the gym space.
(ii) Sales are expected to rise to $550,000 in Year 1 if the changes are made, thereafter increasing by 5% per year. If the changes are not made sales are expected to fall by $40,000 per year.
This is BPP Q23.7
Task 2 : Calculate incremental sales : Answer is 50000 + 40000 = 90000
I understand 550 -500 but where is 40000 from ?
Ask the Tutor ACCA MA
NPV
5y ago#1Last year the sales were $500,000 and if the changes are not made then they will fall by 40,000 and will therefore be $460,000.
If the changes are made then the sales will be $550,000.
Therefore the incremental sales due to making the changes will be 550,000 - 460,000 = $90,000
Thank you Sir
Also the question before that Great southerners
TASK 1: H3 - why is it only 60000 from disposal ? Why are we not adding the sales of (50000*12)
5y ago#3The revenue from the sales of 50,000 a year is effectively included in calculating the contribution each year in row 4.
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