Before beginning work on the project, refer to the Project Formatting document for instructions on formatting and submitting the required work.

Project 1 is due at the end of Week 3 and is out of 39 marks.

You received the following email from Eleanor outlining her requests.

Thank you for agreeing to put together this financial information for us. I've listed the various analyses and kinds of information we are looking for. Please round all dividends to three decimal places and share prices to two decimal places.

1. We would like an estimate of our current market price per share for our common shares. For this, use the following assumptions.

The current date is January 1, 20X3.

At the end of 20X3, Bio-Fuel Generation Inc. (BFG) will pay a dividend of $0.75, which increases by 8% in 20X4 and 6% in 20X5.

Thereafter, the constant growth rate will be 3%.

2. What is the company's weighted average cost of capital using its current capital structure? The current yield on the long-term debt is 7.5%.

3. Operating risk, business risk, and financial risk associated with BFG were often mentioned in our discussions with Trinity Venture Capitalists (Trinity). We would like to have a better understanding of each of these types of risk and how they relate to BFG.

4. As you know, we are looking to commercialize the production of biodiesel from algae. We require $2,000,000 for capital investment in the building and equipment. We have two proposals for financing this project: either by issuing preferred shares or by issuing a loan. Describe the implications on current and future cash flows and net earnings for each option.

5. Using the CPA Way, describe qualitative factors that should be considered for each of these proposals and make a recommendation as to which proposal should be accepted.

6. As a first step in preparing the capital budget for the algae project, we need to understand what sunk costs and opportunity costs are. Based on the assumptions provided, are there any sunk costs or opportunity costs, and if so, how should these be treated in the analysis?

7. Michael wants to understand how the project will be analyzed. He knows there are three methods that can be used: payback period, net present value, and internal rate of return. He would like to understand their similarities and differences and receive a conclusion on which method would be appropriate to analyze the algae production project.

Required:

Prepare the information required for BFG.