Aromatics Inc is a company that sells coffee machines. It is planning to enter into a short-term venture ( 3 years) to open a caf. The venture has an initial capital expenditure of $450,000 and you have been provided with the following projections for the new caf venture (in thousands of dollars). You are also provided with the following information: - 75% of the allocated G\&A expenses are fixed costs. - Non-cash working capital is expected to be 10% of revenue and the investment is to be made at the beginning of the year. - At the end of the venture, all assets would be sold at book value. - The cost of capital for the coffee machine business is 8% while the cost of capital for a caf business is 13%. - The tax rate is 40%. Note: Question No. 3 continues on page 4 3 BF3201 Question 3 (continued) a) Estimate the NPV of the caf venture. (10 marks) b) Suppose the caf business will generate side benefits for the coffee machine business, increasing after-tax cash flows for the coffee machine business by $65,000, each year for the next three years. What effect does this have on your NPV