Recall that Sue expects total expenses of $142,000 in CHC's first year. She will price memberships at $500 and expects to attract 300 members in the first year. She can reduce CHC's debt by $3,600 if she does not spend any money on marketing this year.
However, the expected membership in the first year would be only 280 rather than 300 if no marketing is conducted.
a. What is the expected level of earnings in the first year if Sue decides to reduce CHC's debt as described here?
b. Should CHC's debt level be reduced in the manner described here? Explain.