2a. anal yst, Percy, is considering expanding their tracks to meet demand for fuel-efficient transportation. This project is expected to generate pre-tax revenues that are $5 million per quarter in the first year. These revenues remain constant during the year, but will grow each year at an annual rate of 2 percent for the next 19 years. Initial capital investment will be $40 million and annual pre-tax operating costs will be $16 million at the end of each year for twenty years. Salvage value will be $20 million at the end of twenty years. The initial capital investment is in an asset class with a CCA rate of 20 percent. Thomas' pays tax on its net revenues (or profits) at a rate of 40 percent. Suppose that the annual cost of capital for Thomas is 10 percent, and that no changes are expected in net working capital requirements. Find the NPV and IRR of Percy's track expansion project. Hopefully it would not be in the red like James. (12 marks) 2b. George and The Man visit a railroad company owner, Thomas, and his friends. Their junior corporate Suppose that, without the half-year rule, the PV CCATS of a capital project using the declining balance method is $3 million. Ignoring salvage value (S=0), show clearly what would happen if the half-year rule is now implemented. Assume the cost of capital to be 25%. What is the effect on PV CCATS and NPV of the half-year rule? Note: You must show all working steps clearly and not just use the formula for half-year rule adjustment! (5 marks)