B. Problem Statement You are projecting the purchase of a craft store in Ottawa. 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 3.0%. 3. Annual expenses before taxes of $370,000 at EOY1 increasing annually thereafter by 2.0%. 4. Today's asking price for the building is $1,500,000 with an expected selling price of $2,000,000 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 = $0. 9. You will need a $1,000,000 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 = 25% EOY3 = 35% EOY4 = 30% 10. The annual inflation rate is 4.0%. 11. MARRs are: Before-taxes with inflation = 16.0% Before-taxes without inflation (inflation-free) = 12.0% After-taxes with inflation = 10.0% After-taxes without inflation (inflation free) = 6.0% = BTCF = Before-Tax Cash Flows; ATCF = After-Tax Cash Flows CFOE - Cash Flows on Owner Equity 0 END-OF-YEAR (EOY) 3 BB CC EE 2- DD FF GG HH II 13 | . KK LL MM NN 00 PP QQ RR SS 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 capital gains 15. Recaptured depreciation (or terminal loss) 16. Taxes on recaptured depreciation (or terminal loss) 17. ATCF "Operations" (Actual $) 18. ATCF "Operations" (Constant $) 19. ATCF "SV" (Actual $) 20. ATCF "SV" (Constant $) 21. ATCF "Working Capital" (Actual $). 22. ATCF "Working Capital" (Constant $) 23. Total ATCF (Actual $) 24. Total ATCF (Constant $) 25. (=R10.) Interest on loan 26. Loan repayment 27. CFOE (Actual $) 28. CFOE (Constant S) TT UU W 3 WW XX YY ZZ 1. The dollar amount of cell AA is 2. The dollar amount of cell BB is 3. The dollar amount of cell CC is 4. The dollar amount of cell DD is 5. The dollar amount of cell EE is