Question 3: Capital Budgeting marks) (Total 10 You are considering starting a small bakery in Auckland area. After some market research and analysis, you have come up with two potential locations, one in the Central City (to be named as City Bakery) and the other one in Panmure (to be called Panmure Bakery). The setup costs are estimated to be $50,000 for City Bakery and $45,000 for Panmure Bakery. Given your budget constraint, you can only choose one of these options. You took an optimistic forecasting approach and estimated the following end-of-period cash flows for both options: Year City Bakery After-tax cash flows Panmure Bakery wwwwwwww After-tax cash flows 1 $8,100 $6,800 2 $8,240 $6,836 3 $8,487 $7,075 4 $8,842 $7,716 5 $9,004 $7,361 6 $9,944 $7,729 7 $10,117 $8,915 8 $10,624 $8,521 9 $11,367 $8,947 10 $22,049 $16,594 You expect to run the business for at least 15 years. At the end of the 15th year, if you were to end the business, you estimated the salvage values after depreciation to be $12,000 for City Bakery and $9,000 for Panmure Bakery. You estimate the cost of capital for both options to be 10.5%. a) Using the above information, conduct an NPV analysis for each option. Show all steps, workings and formula(s) clearly. [Hint: the cash flows from the salvage values must be included in the analysis.] (5 marks) NPV for City Bakery: NPV for Panmure Bakery: