You are projecting the purchase of a small restaurant in Kanata. The financial information on this potential investment includes: 1. Projected ownership of 4 years. 2. Rental revenues before taxes of $600,000 at EOY1 increasing annually thereafter by $3,000. 3. Annual expenses before taxes of $250,000 at EOY1 increasing annually thereafter by 2%. 4. Todays asking price for the building is $950,000 with an expected selling price of $800,000 in 4 years. 5. The Canadian income tax rate on this type of investment is assumed to be 40% (on profits before taxes, capital gains or losses, terminal losses and on recaptured depreciation). 6. Buildings and equipment are to be depreciated using the DB method with a 15% depreciation rate. 7. The half-year rule applies to the depreciation of capital assets. 8. Working capital = $2,000. 9. You will need a $550,000 loan at a 10% rate to finance, in part, your purchase and the required working capital. The loan is to be repaid as follows: EOY1 = 10% of the total loan EOY2 = 20% EOY3 = 30% EOY4 = 40% 10. The annual inflation rate is 1.0%. 11. MARRs are: Before-taxes with inflation = 15.0% Before-taxes without inflation (inflation-free) = 14.0% After-taxes with inflation = 9.0% After-taxes without inflation (inflation free) = 8.0% BTCF = Before-Tax Cash Flow; ATCF = After-Tax Cash Flow; CFOE = Cash Flow on Owner Equity

The table is below:

C. Questions Examples of rounding: $650 the nearest $100 becomes $700. $55,500 to the neatest $1,000 becomes $56,000. 1. The dollar amount of cell AA (nearest 1,000) is a) 595,000; b) 606,000; c) 632,300; d) 647,000. 2. The dollar amount of cell BB (nearest 100) is a) 265,300; b) 269,400; c) 272,200; d) 289,500. 3. The dollar amount of cell CC (nearest 100 dollars) is a) 285,600; b) 317,900; c) 322,600; d) 345,900. 4. The dollar amount of cell DD (nearest 100) is a) 785,600; b) 800,000; c) 825,000; d) 845,000. 5. The dollar amount of cell EE (nearest 100) is a) -2,000; b) -1,800; c) 0; d) 2,000.

END-OF-YEAR (EOY) BB CC L DD Cash Flows Annual revenues (AR) Actual $) Annual costs (AC) (Actual $) 1. BTCF "Operations" (Actual $) 2. BTCF "SV" (Actual) 3. BTCF "Working Capital" (Actual $) 4. Total BTCF (Actual $) 5. BTCF "Operations" (Constant $) 6. BTCF "SV" (Constant $) 7. BTCF "Working Capital" (Constant $) 8. Total BTCF (Constant $) 9. Annual Depreciation 10. Interest on loan 11. Taxable Operating Income 12. Taxes on Operating Income 13. Capital gains 14 Taxes on canital mains EGG HH KK NN _CHR 48