2. Capital expenditure (25 marks) Fitness R Us Ltd is a multinational company which operates a chain of gyms around the world and sells health products. The company has devised a special protein product, EnergyVX which they believe will be a revolutionary product for customers who are doing a heavy lifting sport. The product, according to the market research undertaken by the company, is expected to be sold in New Zealand for $12.00 each, with a variable cost of $5.50 for each one sold. Fitness R Us Ltd anticipates that approximately 120,000 units of Energy VX can be sold in New Zealand each year for 4 years, after which the project will be shut down. Annual fixed costs associated with production and distribution of the protein product are $340,000 (the fixed costs do not include depreciation). To start producing and selling protein products, an investment of $600,000 is required to purchase special equipment, plus a $130,000 one-time initial investment in working capital associated with inventory supplies. This one-time initial investment is recoverable in the last year of the project. The company also spent $90,000 on marketing research before making the decision on whether to commence the project or not. Assume that the special equipment will be depreciated straight-line over the project's 4 year life with no residual value. The income tax rate is 28% and Fitness R Us Ltd's WACC is 8%. Required: (a) What is the initial cash outlay which is relevant to this project? (2 marks) (b) Draw the time-line and calculate the after tax operating cash flows at the end of each year. (15 marks) (c) What is the net present value (NPV) of this project (round your result to two decimal places)? (6 marks) (d) Should Fitness R Us accept the project? Why, or why not? (2 mark)