Fit$4$U is a manufacturer of fitness equipment for the retail gym and home fitness markets.

One of their products is the manufacture of home exercise bikes that can be linked up to

recorded instructors on the internet. From $2020$ to $2022$ their business boomed as many

consumers purchased gym equipment to work out at home. Since $2023$ their home

exercise sales have declined, and they are considering selling this part of their business.

The home exercise bike product line generated unlevered free cash flows of $$2$ million per

year in $2023.$ Fit$4$U anticipates that unlevered free cash flows will decrease by $10\%$ per year

from $2024$ onwards in perpetuity.

Fit$4$U has an optimal Debt$-$to$-$Equity ratio of $40-$to$-60.$ The unlevered cost of equity is $12\%$

and the cost of debt is $7\%.$ They pay tax at the marginal tax rate of $32\%.$

a$)$ Calculate the levered cost of Equity of Fit$4$U

b$)$ Calculate the WACC of Fit$4$U

c$)$ Calculate the value of the Home Exercise Bike product line

d$)$ Is the WACC you calculated in part $($b$)$ higher or lower that the unlevered cost of

equity? Explain briefly why it is higher or lower. Could WACC ever be the same as

the unlevered cost of equity? Explain briefly.