Empower Fitness is a smart fitness workout equipment manufacturer located in New York. The company president...

Transcribed Image Text:

Empower Fitness is a smart fitness workout equipment manufacturer located in New York. The company president is Rachel Santos, who founded the company. The company envisions to bring a wide array of gym exercises to home with advanced home workout technologies. Liam MacDonald, a business consultant, has been hired by the company's finance department to evaluate an investment project. One of the major revenue-producing items manufactured by Empower Fitness is a smart fitness mirror. Empower Fitness currently has one smart mirror model that is popular on the market and generates excellent revenue. The smart mirror is a unique compact piece of exercise equipment with reflective and interactive screens like a minor. It works by displaying a professional trainer on the screen and providing feedback on exercisers' movements. As with any electronic devices, technology evolves rapidly. Empower Fitness spent $1,550,000 to develop a prototype for a new smart mirror that adds new features with HD screens and improved AI technology. The company has spent a further $350,000 hiring a marketing firm to determine the expected sales figures for the new smart mirror. Empower Fitness can produce the new smart mirror for $845 each in variable costs. Fixed costs are projected to run $28 million per year to produce the new smart mirror. The estimated sales volume is 560,000, 770,000, 530,000, 405,000, and 255,000 mirrors per year for the next five years, respectively. The unit price of the new smart mirror will be $2,075. The equipment to manufacture the new smart mirror is expected to cost $395 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $9.8 million. Empower Fitness currently produces a model of smart mirror, which is expected to be discontinued in two years. If Empower Fitness does not introduce the new model, sales of the existing model would be 395,000 units and 265,000 units for the next two years, respectively. The price of the existing smart mirror is $1,735 per unit, with variable costs of $605 each and fixed costs of $24 million per year. If Empower Fitness does introduce the new smart mirror, sales of the existing smart mirror will fall by 180,000 units per year, and the price of the existing model will have to be lowered to $1,535 each. Net working capital (NWC) for the smart mirror will be 20 percent of annual net sales and will occur at the beginning of each year; for example, 20% of year 1's sale is the initial NWC of year 1; 20% of year 2's sale is the initial NWC of year 2 etc. So changes in NWC will first occur in Year 0 (beginning of the project) with the initial NWC of year 1. At end of year 5, all NWC will be fully recouped. Empower Fitness has a 21 percent corporate tax rate and a required return of 14 percent. Based on the above data, input the values below: Input Area: Variable cost per unit-new model Fixed cost per year -new model Price per mirror new model Equipment for the new model Variable cost per unit -old model Fixed cost per year-old model Price per mirror - existing model - with no new model MACRS 7-year Depreciation - Year 1 MACRS 7-year Depreciation - Year 2 MACRS 7-year Depreciation - Year 3 MACRS 7-year Depreciation - Year 4 MACRS 7-year Depreciation - Year 5 Price per mirror - existing model - with new model Year 1 unit sales -existing model- with no new model Year 2 unit sales -existing model- with no new model Reduction in sales volume -existing model -with new model Tax Rate Empower Fitness is a smart fitness workout equipment manufacturer located in New York. The company president is Rachel Santos, who founded the company. The company envisions to bring a wide array of gym exercises to home with advanced home workout technologies. Liam MacDonald, a business consultant, has been hired by the company's finance department to evaluate an investment project. One of the major revenue-producing items manufactured by Empower Fitness is a smart fitness mirror. Empower Fitness currently has one smart mirror model that is popular on the market and generates excellent revenue. The smart mirror is a unique compact piece of exercise equipment with reflective and interactive screens like a minor. It works by displaying a professional trainer on the screen and providing feedback on exercisers' movements. As with any electronic devices, technology evolves rapidly. Empower Fitness spent $1,550,000 to develop a prototype for a new smart mirror that adds new features with HD screens and improved AI technology. The company has spent a further $350,000 hiring a marketing firm to determine the expected sales figures for the new smart mirror. Empower Fitness can produce the new smart mirror for $845 each in variable costs. Fixed costs are projected to run $28 million per year to produce the new smart mirror. The estimated sales volume is 560,000, 770,000, 530,000, 405,000, and 255,000 mirrors per year for the next five years, respectively. The unit price of the new smart mirror will be $2,075. The equipment to manufacture the new smart mirror is expected to cost $395 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $9.8 million. Empower Fitness currently produces a model of smart mirror, which is expected to be discontinued in two years. If Empower Fitness does not introduce the new model, sales of the existing model would be 395,000 units and 265,000 units for the next two years, respectively. The price of the existing smart mirror is $1,735 per unit, with variable costs of $605 each and fixed costs of $24 million per year. If Empower Fitness does introduce the new smart mirror, sales of the existing smart mirror will fall by 180,000 units per year, and the price of the existing model will have to be lowered to $1,535 each. Net working capital (NWC) for the smart mirror will be 20 percent of annual net sales and will occur at the beginning of each year; for example, 20% of year 1's sale is the initial NWC of year 1; 20% of year 2's sale is the initial NWC of year 2 etc. So changes in NWC will first occur in Year 0 (beginning of the project) with the initial NWC of year 1. At end of year 5, all NWC will be fully recouped. Empower Fitness has a 21 percent corporate tax rate and a required return of 14 percent. Based on the above data, input the values below: Input Area: Variable cost per unit-new model Fixed cost per year -new model Price per mirror new model Equipment for the new model Variable cost per unit -old model Fixed cost per year-old model Price per mirror - existing model - with no new model MACRS 7-year Depreciation - Year 1 MACRS 7-year Depreciation - Year 2 MACRS 7-year Depreciation - Year 3 MACRS 7-year Depreciation - Year 4 MACRS 7-year Depreciation - Year 5 Price per mirror - existing model - with new model Year 1 unit sales -existing model- with no new model Year 2 unit sales -existing model- with no new model Reduction in sales volume -existing model -with new model Tax Rate