A public trading beef processing company is considering generating its own electricity to meet its needs. Presently the company is using 20 million kWh of electricity annually paying $0.050 per kWh to its local electrical utility. The company is considering "going green" by installing its own wind mill farm on its property to produce enough electricity to meet its needs and thus avoid paying the annual electricity bill to the local utility. The company has also entered into a fixed-price contractual agreement (not subject to inflation) to sell surplus electricity produced by the wind mill farm back to the local utility for $0.30 million annually for the duration of the project. The company has estimated the following data for its wind mill project:

• Expected life of the wind mill farm: 3 years; MARR 15%
• Tax Rate: 40%; Capital Gains, tCG, 20%
• General annual inflation rate: 1.85%. The project is impacted by this inflation rate except as noted.
• Initial costs: $4 million that includes the purchasing of the wind mills and power equipment, site preparation, and wind mill installation combined (CCA rate 30%), plus $0.60 million for a power house building to house the power equipment (CCA rate 20%).
• Salvage values: Wind mills and power equipment combined, $0.10 million; power house building, $0.75 million.
• Annual maintenance costs: $0.125 million, increasing by 3% (specific inflation rate) per year thereafter.
• Working capital: $0.125 million required in year 2 of the project
• Capital Structure: Debt Ratio: 35%
• Debt financing:
• Term loan 55%; annual interest rate 8%, for 4 years. The total loan principal will be paid in the last year of the loan term. Every year the interest will be based on the yearly principal ending balance.
• Bonds. See next page for details. Bonds mature at the end of year 5.
• Equity financing:
• Common share (stock). See next page for details.
• Retained earnings: $1.5 million

1. Develop a Net Income Statement (only the statement please-no supporting information)
2. Develop a Net Cash Flow statement (only the statement please-no supporting information)

Bonds

Flotation cost rate 2.75%

annual interest rate 10%

Bond faced value at maturity $1000

Bond issued price $985

Common shares:

shared issued price: $33

Flotation cost rate: 4.50%

Annual dividend per share $1.25

Share market price at year N $35