It is December 2022. Josephine Cochrane owns and operates a small-appliance repair shop. The shop rents space in a building and is quite busy. Ms. Cochrane is considering constructing a new. larger shop that would replace the existing facility. If construction began in the next few weeks, the shop would be operational before year end. Ms. Cochrane's plan is to operate the shop for ten years and then to retire at the end of 2032. Ms. Cochrane estimates that the new shop would require roughly 1,500 square metres of space. Suitable land is currently available at a cost of $175,000. The building would cost about $750 per square metre to construct or $1,125,000 in total. Equipment would cost a further $375,000. In addition, the new shop requires the use of existing resources which would otherwise be used for other productive uses. Ms. Cochrane estimates the foregone after-tax earnings from existing facility to be $50,000 per year for ten years (starting in 2023 and ending in 2032). Ms. Cochrane has assembled the following estimates for the new shop: Total gross revenue per labour hour: $91.25 Total variable cost per labour hour: $51.17 Annual cash expenses: Supervision and clerical $110,000 Repairs and maintenance $43.000 Utilities, business and property taxes, insurance $75,000 Advertising $39,000 Total $267.000 Capacity operations for the shop are estimated at 25.500 saleable hours per year. Ms. Cochrane estimates that the new shop will operate at 60% capacity in 2023, 70% capacity in 2024, 80% capacity in 2025, 90% capacity in 2026, and 100% thereafter. Ms. Cochrane believes that investment in different types of working capital will total $20,000 at inception of the project. She also believes that the net working capital required by the project will stay at 10% of total gross revenue at the end of each year 2023 through 2031 and then fall to $0 by the project's end in 2032. At the end of 2032, when she plans to retire, Ms. Cochrane expects to be able to sell the land for $185.000 and the building for $600,000. 50% of any capital gain from the sale of the land would be taxable at the corporate rate of 40% (incurred immediately upon the sale). The equipment would be worthless (treat this as being equivalent to "selling the equipment for S0 at the end of 2032). Assume that any carry-over tax credit that results from the sale of assets (ie.. from a terminal loss or CCA recapture) can be applied to Ms. Cochrane's personal retirement income in 2033. Capital cost allowance depreciation rates are 5% for the building, 20% for the equipment, and 0% for land. The corporate tax rate is 40%. When considering investment decisions of this type. Ms. Cochrane uses a 16% real after-tax hurdle rate. (a) (10 points) Build a forecast of free cash flows for constructing the new, larger shop. Assume all initial investments are incurred immediately (i.e. at the end of 2022). Make sure to calculate annual CCA using a declining-balance depreciation schedule, accounting for the Accelerated Investment Incentive (150% rule) for first year of any capital investment. (b) (3 points) What is the NPV of the constructing the new, larger shop? Assume asset pools terminate for CCA tax purposes when assets are sold. Any terminal loss tax shield or recaptured CCA is incurred one year after the assets are sold. (c) (2 points) How would your NPV change if CCA depreciation was reduced by 50% (under the old half-year rule) in the first year instead of being raised by 50% (under the Accelerated Investment Incentive)?