Shortly after qualifying as a Certified Pilates Instructor five years ago, Amita started Mink Pilates Fitness Studio. At the tin she purchased fitness equipment and did renovations to turn the basement of her home into a fitness studio at a total cost $22,000. To launch her studio she paid a web developer $1,200 to develop a website and for annual web maintenance s pays an ongoing annual fee of $99. She now has 30 regular clients that attend her small class training sessions. She is currently deciding whether she should upgrade her studio. The upgrade will double the size of the space allowing her increase her class sizes. She has received quotes for the renovation and new equipment of $40,000. She estimates that th upgrades and equipment will last 8 years. After the upgrade, depreciation is estimated to increase from $2,200 to $7,700 po year. She plans the renovation for the month of July when the studio is closed every year. After the renovation, she estimate that her client base will increase from 30 to 40 at the end of the first year and will reach 50 by the end of year two. Clients ca choose from two options: 1. For a monthly fee of $100 clients can attend up to 10 classes a month. 2. Drop-in class rates are $15 per class. Drop-in clients attend 6 classes a month on average. Currently half of her clients choose each option and she expects that to continue. Mink Pilates is closed for holidays during July every year. In the past Amita has hired a substitute instructor for classes that she is not able to teach. She is not expecting that to change and she has again budgeted $2,000 per year for a substitute. She will need to upgrade the package from her web service provider from the $99 annual fee to a $299 annual fee. For the higher price she will have access to more sophisticated online class scheduling and booking software and an online payment option. Amita will also need new spare parts inventory for her new fitness equipment. This will requires an upfront investment of $1,500. Parts inventory levels will be kept constant until year 8 , after which the original investment will be recovered. In planning the latest renovation, Amita considered an alternative use of the studio, and she estimates that she could earn $9,000 per year if the studio was rented out to a tenant. You have advised Amita to do an NPV analysis for the expansion of her studio. Amita estimates her opportunity cost of capital to be 6%. Ignore taxes. Required: a) Should Amita go ahead with the expansion? Prepare an NPV analysis. Convert any monthly cash flows to annual and assume cash flows occur at the end of the year. You can assume the start of the financial year to be July 1 st and end of the year of June 30th. Assume that construction happens in July at time 0 . b) What annual incremental operating cash flow would result in breakeven NPV for the studio upgrade