I have attached the required supporting documents please answer q3

Statement of comprehensive income for the year ended December 31 Revenue Cost of goods sold Gross prot Expenses Selling and marketing Research and development General and administrative Other operating costs Operating income Interest expense line of credit Interest expense long-term debt Earnings before taxes Income taxes Net income 20x2 20x1 $ $ 10,458,240 9,734,502 9,075,000 8,473,800 1,383,240 1,260,702 103,500 92,400 370,020 365,100 458,200 423,900 15,900 14,200 947,820 895,800 435,620 365,102 (8,650) (7,150) (149,270) (149,270) 277,700 208,682 (69,425) (52,171) 208,275 156,511 Statement of financial position as at December 31, 20X2, and 20x1 ASSETS Current Cash Accounts receivable Inventory Property, plant, and equipment Total assets LIABILITIES Current Line of credit Trade and other payables Non-current Long-term debt Total liabilities Shareholders' equity Common shares (400,000 shares outstanding) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 20x2 20x1 $ $ 60,690 57,100 450,640 395,100 736,500 669,500 1,248,030 1,141,700 2,569,300 2,450,000 3,637,330 3,591,700 165,230 122,400 625,620 579,331 790,650 701,731 1,656,560 1,656,560 2,449,410 2,360,291 415,000 415,000 972,920 616,409 1,367,920 1,231,409 3,637,330 3,591,700 day-lo-day operating, strategic, and financial decisions. b. Sherry LePage, a private investor and current board member - Sherry recently inherited some cash and is looking to make an investment. She has offered to invest $2,000,000 in the form of a loan. The loan will bear annual interest at 7%, payable monthly. The loan matures in 20 years when the full amount of principal is due. Note: You are not required to recalculate the weighted average cost of capital under each proposal. 4. BFG's corporate income-tax rate is currently 25%. 5. Based on market data, you have determined that the current risk-free rate is 3% and the expected market price of risk is 5%. You have estimated that the industry beta is 1.9.The following are the assumptions for the production plant and sale of bio-fuel produced by the algae: Construction of the building and equipment will cost $1,500,000 and $500,000, respectively. The building qualifies for Class 1 (4%) and the equipment qualifies for Class 8 (20%) CCA for incometax purposes. The half-year rule is applied to both classes in the year of addition. The company currently has vacant land that is being held for capital appreciation. This land will be used for the building. The land was purchased six years ago for $300,000. Today it is worth $400,000. The company has incurred development costs to date related to this project of $150,000. An initial working capital investment of $30,000 is needed for inventory and receivables, which remain unchanged throughout the project life. Annual revenues will be as follows: 0 20X3 $1,400,000 0 20X4 $1,800,000 0 20X5 and each year thereafter $2,300,000 Cost of goods sold will be 30% of revenue and selling and marketing costs will be 10.2% of revenues. Fixed operating costs will be $575,000 per year. These annual cash flows will occur for 10 years which is the estimated life of the project. At the end of the 10 years, the building can be sold for $250,000, the land can be sold for $400,000, and the equipment will have no value. Assume that there are still assets remaining in the CCA classes at this time after the proceeds of disposition. For this project, the company pays income taxes at 25% and has a discount rate of 17%. CURRENT CAPITAL STRUCTURE AND PROPOSALS The company has the following issued capital: 1. Line of credit First Royal Bank The line of credit has a maximum amount of $200,000 and is secured by the accounts receivable and inventory. The line of credit bears interest at prime plus 2.5%. Currently, prime is at 3.5%. Long-term debt First Royal Bank The long-term debt matures December 31, 20x9, when the full amount of the principal is due. The loan bears interest at 9%, which is payable annually. The loan is secured by the property, plant, and equipment. The long-term debt has a covenant that the long-term debt to total asset ratio cannot exceed 0.70. 3. Eleanor has approached two potential investors for investment in the algae bio-fuel project. The proposals from each party are outlined below: a. Trinity Venture Capitalists (Trinity) When BFG started operations, Trinity provided some initial funding which has since been paid back. Trinity is now proposing to invest $2,000,000, to be used to commercialize the algae production. BFG will issue 200,000 non-voting, cumulative preferred shares at a price of$10 per share. Cumulative dividends at the rate of 6% will be paid on the preferred shares. These shares are convertible into common shares on a one-to- one basis at the option of Trinity any time after 20X5. Any dividends in arrears must be fully paid prior to redemption or conversion. BFG may redeem these shares any time after 20x9 and prior to conversion. Trinity requires that two representatives be members on the board of directors who will be involved in the day-to-day operating, strategic, and financial decisions. . Sherry LePage, a private investor and current board member Sherry recently inherited some cash and is looking to make an investment. She has offered to invest $2,000,000 in the form of a loan. The loan will bear annual interest at 7%, payable monthly. The loan matures in 20 years when the full amount of principal is due. 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. (6 marks) BFG is owned by Eleanor Whiteman, a renowned scientist in the research of biomass- based fuels, and her husband, Michael Whiteman. Eleanor owns 300,000 common shares and Michael owns 100,000 common shares. Currently, the company has three directors on its board - Eleanor, Michael, and Sherry LePage, a long-time friend. Sherry has a PhD in Biology, specializing in algae, and teaches at the local university. With her background and experience, Sherry advises on the research conducted at the firm. She is very interested in this project of using algae to produce fuel