Athena is thinking about joining the Buena Vista Golf & Social Club to improve her business....

Athena is thinking about joining the Buena Vista Golf & Social Club to improve her business. She believes that joining the golf club will result in a higher free cash flow growth rate of 10% per year to her business. If she doesn’t join, her business will maintain the lower free cash flow growth rate of 5% per year. Last year (year 0), Athena’s business had free cash flow of $100,000. However, joining the club has costs. It would cost a nonrefundable initiation fee of $65,000 due immediately, plus an annual fee of $5,000 due at the end of each year. Either way, she’ll run the business for 20 more years, at which point it will have no residual value, and she will stop her membership at the Golf Club. If the applicable discount rate is 15%, should Athena join the Buena Vista Golf & Social Club?

Yes or No

Expert Solution

Use spreadsheet for the ease in computations. Enter values and formulas in the spreadsheet as shown in the image below.

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jeff jeffy answered 1 year ago

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