Questions

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.(6marks)

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. (6.5marks)

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. (9marks)

6.As a first step in preparing the capital budget for the algae project, we need to understand what sunk costs and opportunity cos tsare. Based on the assumptions provided, are there any sunk costs or opportunity costs,and if so, how should these be treated in the analysis? (4 marks)

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, andinternal 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. (4.5marks)

Required:Prepare the information required for BFG.