03} Abraham and his sons are going to open new tnlcldng company and they have requested tor your help. You have received the following information: Initial investment: 20 Trucks @ $150,000 each; 20 Trailers@ $50,000 each Salvage value alter 10 years: 200,000 Garage and ofce: will be rented Cash flow growth: 1% per year alter year 202? over projections Owner's equity tor initial investment: $2,000,000 The overall tax rate for the company is 25%. The assets will be depreciated at 30% per year {Class 10, CCA = 30%). The Canadian banks will charge 6% (Prime + 3%) interest on debt nancing for 10year nancing. The information on betas from 5 different companies is as follows: Company A: p = 0.90 Company 0: p = 1.20 Company C: p = 0.73 Company 0: p = 0.49 Company E: p = 1.14 The expected rate of return on market portfolio is 0%. The risktree rate of return is 1%. The adjusted cash ow alter tax is as follows: Year 2020 2021 2022 2023 2024 2025 2026 202? 2028 2029 2030 CF 0 400000 600000 T00000 800000 900000 1,000,000 1,100,000 1,200,000 1,212,000 1,224,120 Based on the given information, what is the cunent value of new venture? Hint: Calmlate Present Value (PV). Answer: R5 = Rf + pa (E[Rh] Rf WACC = EN'Re + DN'Rd'UTc) [ch 1+0.5k gm: 1 X X d+k 1+}: d+k (1+k)\" PV tax shield on CCA = I = Total Capital Investment; d = CCA tax rate; To = Corporate Tax Rate; k = discount rate; Sn = Salvage value in year r:_l'z n = number of periods in the project