Bills Bootstrap is analyzing whether to go ahead with a project to set up a pop-up store at the Calgary Stampede, which would be operational for the next three years.

Part A.

The mini building would cost the company $600,000 today and would be sold at the end of the three years for $0 and have no tax consequences thereafter. With a CCA rate of d = 25%, what are the CCA deductions for the three years of operations?

Bills Bootstrap is analyzing whether to go ahead with a project to set up a pop-up store at the Calgary Stampede, which would be operational for the next three years.

Part B.

The Gross Profit of this project will be $370,000 next year and this will grow at a rate of 3% per year for the following two years. They expect 30% of the gross profit in any year will come from customers who would have travelled to purchase their items at the old store, indicating cannibalization. The space for the mini building could be rented out for $100,000 per year, if this project is not taken on. The interest expense for the debt that Bills Bootstrap has to take on is $1,500 per year and the tax rate is 30%. What is the Unlevered Net Income for each year of operation?

Part C.

The net working capital is $9,000 in years 1 and 2 and will be recovered at the end of year 3. The interest rate is 8%. What is the NPV of this project?