1. The owner of Bliss Yoga Studios has been struggling due to the global pandemic such that they expect to cease operations at the end of two years and liquidate. Sales of the existing operations are expected to be flat during the remaining years of operation. In an attempt to increase earnings before closing, the owner is considering turning some of the locker room space at its studios into take-out juice bars to increase the return on investment. According to a $2,500 market research study, this offering has some attractive growth potential Revenues are expected to increase from $750,000 to $1,000,000 in the first year with annual growth of 15% in the second year. Each year COGS will be 60% of sales and SG&A will be 20% of sales. Additional cash of $2,503 and inventory of $6,522 will be required immediately but this investment will be financed with a 2-year bank loan that carries a 5% interest payment, compounded quarterly. The juice bar sales are expected to have a lower collection period of 10 days, cash requirements will increase to 5% of sales, inventory turnover will increase to 20 times, and they expect to use the same payment policy of 30 days for each year of operation. At the end of two years, it is anticipated that 90% of the juice bar operating net working capital will be recouped. The current locker room spaces will need $10,000 in renovation expenditures to accommodate the new juice bar operations. These expenditures will be fully depreciated using straight-line depreciation over 5 years. Additional equipment will cost $3,000 and will be fully depreciated straight-line over 3 years, with an expected value in 2 years of $1,000. These expenditures can be offset by liquidating equipment that would no longer be needed for $8,000 today. This equipment was originally purchased 3 years ago for $25,000 and is being fully depreciated using straight-line depreciation over 5 years with an expected market value of $5,000 in 2 years. The buildings where the studios are located were purchased 6 years ago for $350,000, are being depreciated straight-line to zero over 10 years, have a current market value of $400,000 and an expected market value of $405,000 in 2 years. All cash flows are assumed to occur at year-end and the marginal tax rate is 30% a. Using the information provided above, calculate and show all calculations to derive the relevant incremental annual cash flows that are expected from the strategic change in operations for the initial phase today, the first year of operations, and the liquidation value at the termination phase in year 2 (you do not need to calculate the DCFs or NPV). Initial Investment Phase (t): Incremental Free Cash Flow (E1) Generated from the Business Operations: Termination Value Generated From the Termination of the Business Operations (T=2): 1. The owner of Bliss Yoga Studios has been struggling due to the global pandemic such that they expect to cease operations at the end of two years and liquidate. Sales of the existing operations are expected to be flat during the remaining years of operation. In an attempt to increase earnings before closing, the owner is considering turning some of the locker room space at its studios into take-out juice bars to increase the return on investment. According to a $2,500 market research study, this offering has some attractive growth potential Revenues are expected to increase from $750,000 to $1,000,000 in the first year with annual growth of 15% in the second year. Each year COGS will be 60% of sales and SG&A will be 20% of sales. Additional cash of $2,503 and inventory of $6,522 will be required immediately but this investment will be financed with a 2-year bank loan that carries a 5% interest payment, compounded quarterly. The juice bar sales are expected to have a lower collection period of 10 days, cash requirements will increase to 5% of sales, inventory turnover will increase to 20 times, and they expect to use the same payment policy of 30 days for each year of operation. At the end of two years, it is anticipated that 90% of the juice bar operating net working capital will be recouped. The current locker room spaces will need $10,000 in renovation expenditures to accommodate the new juice bar operations. These expenditures will be fully depreciated using straight-line depreciation over 5 years. Additional equipment will cost $3,000 and will be fully depreciated straight-line over 3 years, with an expected value in 2 years of $1,000. These expenditures can be offset by liquidating equipment that would no longer be needed for $8,000 today. This equipment was originally purchased 3 years ago for $25,000 and is being fully depreciated using straight-line depreciation over 5 years with an expected market value of $5,000 in 2 years. The buildings where the studios are located were purchased 6 years ago for $350,000, are being depreciated straight-line to zero over 10 years, have a current market value of $400,000 and an expected market value of $405,000 in 2 years. All cash flows are assumed to occur at year-end and the marginal tax rate is 30% a. Using the information provided above, calculate and show all calculations to derive the relevant incremental annual cash flows that are expected from the strategic change in operations for the initial phase today, the first year of operations, and the liquidation value at the termination phase in year 2 (you do not need to calculate the DCFs or NPV). Initial Investment Phase (t): Incremental Free Cash Flow (E1) Generated from the Business Operations: Termination Value Generated From the Termination of the Business Operations (T=2)