You are thinking of starting a business.You would finance it with 60% equity and 40% debt.Relevant rates are as follows:

Small business tax rate - 18.62%

Risk free rate -4%

Your pre-tax borrowing rate -9.216%

Expected return on stock market -12%

You estimate that your firm's (beta) will be 0.75.

The business you are thinking of starting is a house painting business.You hired a FINA2710 graduate to develop cash flow estimates for you and you have paid that FINA 2710 grad $300 for their work.They estimated that you would need to purchase a truck.You could buy a truck for $18,000, and it would have a capital cost allowance (CCA) rate of 30%.You would also need to establish a $250 inventory of rollers and brushes.The estimated annual pre-tax net operating cash inflow is $9,500.

a)What is the Net Present Value (NPV) of starting the business, operating it for 2 years, and after that keeping the truck but not the inventory?

b)What is the NPV of starting the business, operating it for 2 years, and then winding up all aspects of the business, including selling the truck for $10,000? (The business has no other automotive assets).