A public trading beef processing company is considering generating its own electricity to meet its needs. Presently the company is using 17.0 million kWh of electricity annually paying $0.40 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 to sell surplus electricity produced by the wind mill farm back to the local utility for $250,000 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: 18% Initial costs: $6.0 million that includes the purchasing of the wind mills, power equipment, site preparation, and wind mill installation combined (CCA rate 30%), plus $0.65 million for a power house building to house the power equipment (CCA rate 15%). Salvage values: Wind mills and power equipment combined, $1.25 million; power house building, $0.70 million Annual maintenance costs: $5.0 million Working capital: $0.10 million required in year 1 of the project Tax Rate: 30%; Capital Gains, tcr, 15% Capital Structure: Debt Ratio: 60% Debt financing: o Term loan 60%; annual interest rate 10%; for 4 years. Loan to be paid based on equal repayment of principal method, PLUS yearly interest on the unpaid yearly balance. o Bonds. See next page for details. Bonds mature at the end of year 5. The bonds will be repurchased at the end of the project to maintain the Debt Ratio. Equity financing: O Retained earnings: $1.00 million o Common share (stock). See next page for details. The shares will be repurchased at the end of the project to maintain the Debt Ratio. a) Develop a Net Income Statement (only the statement please-no supporting information) b) Develop a Net Cash Flow statement (only the statement please-no supporting information) c) Use the PW criterion to decide if the company should undertake this project. Bonds Floatation Cost Rate Annual Interest Rate Bond Face Value at Maturity Bond Issued Price 2.75% 10% 1,000 985 $ $ $ Common Shares Share issued Price Floatation Cost Rate Annual Dividend per Share Share Market Price at year N 33 4.50% 1.25 35 $ $ A public trading beef processing company is considering generating its own electricity to meet its needs. Presently the company is using 17.0 million kWh of electricity annually paying $0.40 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 to sell surplus electricity produced by the wind mill farm back to the local utility for $250,000 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: 18% Initial costs: $6.0 million that includes the purchasing of the wind mills, power equipment, site preparation, and wind mill installation combined (CCA rate 30%), plus $0.65 million for a power house building to house the power equipment (CCA rate 15%). Salvage values: Wind mills and power equipment combined, $1.25 million; power house building, $0.70 million Annual maintenance costs: $5.0 million Working capital: $0.10 million required in year 1 of the project Tax Rate: 30%; Capital Gains, tcr, 15% Capital Structure: Debt Ratio: 60% Debt financing: o Term loan 60%; annual interest rate 10%; for 4 years. Loan to be paid based on equal repayment of principal method, PLUS yearly interest on the unpaid yearly balance. o Bonds. See next page for details. Bonds mature at the end of year 5. The bonds will be repurchased at the end of the project to maintain the Debt Ratio. Equity financing: O Retained earnings: $1.00 million o Common share (stock). See next page for details. The shares will be repurchased at the end of the project to maintain the Debt Ratio. a) Develop a Net Income Statement (only the statement please-no supporting information) b) Develop a Net Cash Flow statement (only the statement please-no supporting information) c) Use the PW criterion to decide if the company should undertake this project. Bonds Floatation Cost Rate Annual Interest Rate Bond Face Value at Maturity Bond Issued Price 2.75% 10% 1,000 985 $ $ $ Common Shares Share issued Price Floatation Cost Rate Annual Dividend per Share Share Market Price at year N 33 4.50% 1.25 35 $ $