ABC Co. Ltd. ("ABC") is a privately held and New Brunswick incorporated company with its head office in Minto, New Brunswick. The common shares of ABC are owned as follows: David (Husband) Mary (Wife) James (stepson) -51% -30% - 19% The sole Director of ABC is David. ABC is, through the good management of Larry (David's Father), abundantly cash rich and has no short-term or long term Debt. The Retained Earnings of ABC as at December 31, 2020 was $15.0 million. Larry died on December 30, 2019, and, through his Last Will, left all his common shares in ABC to David, Mary and James. Prior to Larry's death, neither David, Mary nor James played any role in the affairs/business of ABC. James is a 20-year-old High-school drop-out, and is hoping to convince his parents to utilize the cash resources of ABC to expand the operations of ABC. David and Mary are, respectively, 62 years old and 42 years old. James has undertaken some research over the Internet, and has concluded that he has identified a great investment opportunity - XYZ Ltd. - for ABC. James' Internet research has led him to conclude as follows relative to XYZ: a) XYZ is a privately held company incorporated in Panama in 2004; b) The sole shareholder and Director of XYZ is an individual - Robyn Hoode - living in France; C) XYZ operates a furniture manufacturing business located in Lebanon. d) XYZ has generated the following cash flows (all unaudited) over the years referenced below (all in Cdn $): 2015: $100,000.00 2016: $375,000.00 2017: $875,000.00 2018: $125,000.00 2019: $1,500,000.00 2020: $90,000.00 e) The future cash inflows of XYZ are forecasted to be as follows (all Cdn $): 2021: $250,000.00 2022: $1,750,000.00 2023: $340,000.00 2024: $800,000.00 2025: $350,000.00 Total: $3,490,000.00 f) Through an exchange of emails, Robyn Hoode has advised James that the purchase price to acquire the sole share of XY is $2.5million (Cdn), payable as follows: Jan 1, 2022: $1,400,000.00 Jan 1, 2023: $1,000,000.00 Jan 1, 2024: $100,000.00 g) James's research also reveals that XYZ will need to replace manufacturing equipment in the year 2024. The anticipated replacement costs is $500,000.00 h) According to James, ABC stands to generate a guaranteed" profit of approximately $500,000.00 from the acquisition of XYZ, calculated as follows: Future Cash Flows: $3,490,000.00 Less: Purchase Price: $2,500,000.00 Replacement Costs: $ 500,000.00 "Profit" $ 490,000.00 Mandate Your Group has been retained by David to advise him on the issues arising against the backdrop of the potential acquisition of XYZ. David and Mary have been under a lot of pressure from James to make the purchase of the XYZ share. James expects to be appointed as the CEO of XYZ and to live in Panama....his freedom from the "hustle and bustle" of living in Minto, NB. David's focus is on the quality of the retirement years for him and Mary, David expects a quantitative analysis, along with qualitative considerations. Mary is confused, and just wants to avoid what she expects will be a confrontation between David and James over the potential acquisition of XYZ. 3 David has advised you that your analysis and report will, in due course, be shared with James and Mary. Given Larry's recent death, David has been unable - emotionally - to consider any other investment opportunity for ABC. Your research and the exercise of your professional judgment have revealed the following: the risk-free rate in Canada is currently 2%; There are no preferred shares outstanding within ABC; David is the step-father of James; . XYZ has never been subjected to an audit by an independent firm of external auditors; the market risk premium for this potential investment is, at least, 18%; The historic and forecasted cash inflows to XYZ have been provided to James by Robyn Hoode via Facebook, and, David prefers, where appropriate, that the narrative portion of any report be in "bullet point" format. David advises that his training as a Chartered Accountant has given him, over many years, a rather keen interest in quantitative analysis. He has directed that you provide your quantitative analysis to him for his review & consideration. In addition, David advises that he is "open" to any necessary assumptions underlying your analysis, provided the assumptions are (i) reasonable, (ii) consistent with each other, and (iii) clearly stated in your report. Finally, David also advises that your written narrative, delivered in pdf format, should not exceed seven (7) typewritten pages, single-spaced and Times New Roman with 12-point font. Required: Advise David accordingly. ABC Co. Ltd. ("ABC") is a privately held and New Brunswick incorporated company with its head office in Minto, New Brunswick. The common shares of ABC are owned as follows: David (Husband) Mary (Wife) James (stepson) -51% -30% - 19% The sole Director of ABC is David. ABC is, through the good management of Larry (David's Father), abundantly cash rich and has no short-term or long term Debt. The Retained Earnings of ABC as at December 31, 2020 was $15.0 million. Larry died on December 30, 2019, and, through his Last Will, left all his common shares in ABC to David, Mary and James. Prior to Larry's death, neither David, Mary nor James played any role in the affairs/business of ABC. James is a 20-year-old High-school drop-out, and is hoping to convince his parents to utilize the cash resources of ABC to expand the operations of ABC. David and Mary are, respectively, 62 years old and 42 years old. James has undertaken some research over the Internet, and has concluded that he has identified a great investment opportunity - XYZ Ltd. - for ABC. James' Internet research has led him to conclude as follows relative to XYZ: a) XYZ is a privately held company incorporated in Panama in 2004; b) The sole shareholder and Director of XYZ is an individual - Robyn Hoode - living in France; C) XYZ operates a furniture manufacturing business located in Lebanon. d) XYZ has generated the following cash flows (all unaudited) over the years referenced below (all in Cdn $): 2015: $100,000.00 2016: $375,000.00 2017: $875,000.00 2018: $125,000.00 2019: $1,500,000.00 2020: $90,000.00 e) The future cash inflows of XYZ are forecasted to be as follows (all Cdn $): 2021: $250,000.00 2022: $1,750,000.00 2023: $340,000.00 2024: $800,000.00 2025: $350,000.00 Total: $3,490,000.00 f) Through an exchange of emails, Robyn Hoode has advised James that the purchase price to acquire the sole share of XY is $2.5million (Cdn), payable as follows: Jan 1, 2022: $1,400,000.00 Jan 1, 2023: $1,000,000.00 Jan 1, 2024: $100,000.00 g) James's research also reveals that XYZ will need to replace manufacturing equipment in the year 2024. The anticipated replacement costs is $500,000.00 h) According to James, ABC stands to generate a guaranteed" profit of approximately $500,000.00 from the acquisition of XYZ, calculated as follows: Future Cash Flows: $3,490,000.00 Less: Purchase Price: $2,500,000.00 Replacement Costs: $ 500,000.00 "Profit" $ 490,000.00 Mandate Your Group has been retained by David to advise him on the issues arising against the backdrop of the potential acquisition of XYZ. David and Mary have been under a lot of pressure from James to make the purchase of the XYZ share. James expects to be appointed as the CEO of XYZ and to live in Panama....his freedom from the "hustle and bustle" of living in Minto, NB. David's focus is on the quality of the retirement years for him and Mary, David expects a quantitative analysis, along with qualitative considerations. Mary is confused, and just wants to avoid what she expects will be a confrontation between David and James over the potential acquisition of XYZ. 3 David has advised you that your analysis and report will, in due course, be shared with James and Mary. Given Larry's recent death, David has been unable - emotionally - to consider any other investment opportunity for ABC. Your research and the exercise of your professional judgment have revealed the following: the risk-free rate in Canada is currently 2%; There are no preferred shares outstanding within ABC; David is the step-father of James; . XYZ has never been subjected to an audit by an independent firm of external auditors; the market risk premium for this potential investment is, at least, 18%; The historic and forecasted cash inflows to XYZ have been provided to James by Robyn Hoode via Facebook, and, David prefers, where appropriate, that the narrative portion of any report be in "bullet point" format. David advises that his training as a Chartered Accountant has given him, over many years, a rather keen interest in quantitative analysis. He has directed that you provide your quantitative analysis to him for his review & consideration. In addition, David advises that he is "open" to any necessary assumptions underlying your analysis, provided the assumptions are (i) reasonable, (ii) consistent with each other, and (iii) clearly stated in your report. Finally, David also advises that your written narrative, delivered in pdf format, should not exceed seven (7) typewritten pages, single-spaced and Times New Roman with 12-point font. Required: Advise David accordingly