Auto Wash Bot Ltd. Income Statement For the Year Ended December 31, 2015 + Revenue $375,000 Cost of Goods Sold 86,250 Gross Profit 288,750 Other Expenses Advertising 35,400 Office Expense 22,750 Research 45,000 Wages and Salaries 40,000 Total Other Expenses 143,150 Income Before Taxes 145,600 Income Tax 21,840 Net Income $123,760 Popeye's Muscle Wash Ltd Income Statement For the Year Ended December 31, 2015 Revenue $375,000 Cost of Goods Sold 133,125 Gross Profit 241,875 Other Expenses Advertising 5,200 Office Expense 17,400 Repairs and Maintenance 35,000 Wages and Salaries 50,000 Total Other Expenses 107,600 Income Before Taxes 134,275 Income Tax* Net Income 20,141 $114,134 *Tax rate of 15% used. Note to students: Issues are hidden within the case. It is your responsibility to read the case facts and identify the critical issues required for discussion and analysis. Requirement Firstly, as a financial analyst you have to analyze the profitability of both companies by using financial ratio analysis. Secondly, To finance this acquisition, Big Spenders Inc needs to issue bonds and common shares. Currently, it can issue its 10 years semiannual bonds with 6% coupon rate at $990 per bond. Big Spenders is a public company and its share is traded at Toronto Stock Exchange market. The treasure bill earns 3% annually (Rf) and the market premium is 10%. Big Spenders's beta is 1.2 last year. The investment will be financed with 40% debt and 60% equity, both based on market values. Assume the firm's tax rate is 15%. Looking into further the investment opportunities, the accountant has forecasted the operating cash flows of both companies. Operating Cash Flows Auto Wash Bot Ltd Year 1 55,000 Year 2 45,000 Year 3 56,000 Popeye's Muscle Wash Ltd 75,000 75,000 75,000 Year 4 200,000 120,000 Year 5 150,000 120,000 Explaining to your client which investment criteria the company can use to make its investment decision and what are the pros and cons? Provide the calculation of the investment criteria you select and give recommendation to your client which company they should acquire.