QUESTION 1: DCF You are the CFO of company ABC, a manufacturer of exercise machines. Your firm is considering opening up a new store in Barrie. As part of setting up the store, you invest in furniture and fittings of $30 million. These assets are categorized as a Class 8 asset by the CRA, with a CCA rate of 20%. At the end of the life of the store, the furniture and fittings will have a zero value. The store will have a life of 20 years. It will generate annual sales of 5,000 exercise machines, and the price of each machine is $2,500. You expect the sales to remain constant over the 20 year life of the store. The operating expenses of running the store, including labor and rent, will amount to $6,000,000 per year. In addition, your firm will also need to invest $2 million in additional working capital immediately, and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. Your cost of capital for evaluating this project is 12%. (a) Calculate the NPV of this project, and conclude on whether you should invest. (b) Suppose that you were able to sell the furniture and fittings at the end of 20 years for an amount that was less than $30 million. Explain how you would adjust your NPV to reflect this.