Financial Modelling Assessment 2
Additional information on Festa Fitness Pty Ltd
Use the following information provided by Festa’s management team to determine assumptions for your financial model,
Acquisition strategy update
Festa does not intend to make any further acquisitions in this period Instead, it will consolidate its investment into the current portfolio. The portfolio consists of 140 gyms (also referred to as ‘locations’)
Investment strategy
Brand refresh
A review of Festa’s portfolio determined the brand refresh will require the following capital spend on interior and exterior decor and signage. For the model, you can assume the following:
• The refresh will be started and completed in the allocated month
• The investment should be capitalised and depreciated in the same month (for a full month)
• Suppliers are paid at the end of the next month (ie equipment purchased in August will be installed, capitalised and depreciated in August, and paid for in September)
• All capital expenditure relating to the brand refresh will be classified as furniture, fixtures and fittings. It will be depreciated at 20%, straight line.
While the actual spend will vary according to the size, condition and location of each gym, for the model you should assume an average of $65,000 per gym, with the refresh staggered as follows:
Equipment upgrade
Festa will upgrade the gym equipment and machinery in 40 locations at an average cost of $90,000 per gym Full payment is to be made on ordering, at the end of August 2023 It is anticipated that the equipment will be delivered, capitalised and in use in November 2023
The equipment upgrade capital expense will be classified as plant and equipment, and depreciated at 15%. straight line, You can also assume no disposals or write-offs from the upgrades (value immaterial).