Total marks: 60

A public trading beef processing company is considering building a wind mill farm to generate electricity to meet the needs of its operations. The company has estimated the following data for its wind mill farm project:

• Expected life of the wind mill farm, 4 years
• Total initial investment: $8.5 million
• Total salvage value of all assets at the end of year 4: $750,000
• Total after tax disposal, G at the end of year 4: $225,000
• Working capital: $125,000 required in year 2
• Tax Rate: 20%
• Capital Financing Structure; Debt Ratio: 15%
• Debt financing: Loan and Bond
  • Loan: interest rate 5%; loan term 4 years; method of loan payment, equal annual payments method
  • Bond 60% allocation: Bonds mature at the end of year 5.
    • Bond data:

Flotation cost rate	3.00%
Annual interest rate	10%
Bond face value at maturity	1,000
Bond issue price	965

• Equity financing: Retained Earnings and Common Shares.
  • Retained earnings: $750,000
  • Common share data:

Share issued price	29
Floatation cost rate	5.5
Annual dividend per share	1.75
Share market price at year N	37

• The company has produced a partial Net Income statement (see next page).

Your task is to:

1. Complete the Net Income Statement provided.

Complete the Cash Flow Statement

Year	0	1	2	3	4
Income statement
Revenues or cost savings		1,360,000	1,360,000	1,360,000	1,360,000
Expenses
Operating expenses		65,000	65,000	65,000	65,000
Toral CCA		345,000	445,000	555,000	600,000