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Presentation/PPT
27/08/2022
Question:Please show all details and you can use excel to build some tables.
Your goal is to figure out whether starting a microbrewery in Nova Scotia is a good idea or not. You need to perform net present value analysis. In addition, you need to estimate payback period, discounted payback, internal rate of return and profitability index. If you cannot estimate a certain parameter, indicate why.
The inputs for your analysis are as follows:
year one $200,000
year two $1,000,000
year three $2,000,000
Starting year four, your sales will grow at a rate of 3 percent until year ten, when you close the business. You could grow sales faster if you expanded into other provinces, but provincial governments in Canada impose regulatory hurdles on beer imports from other provinces.
Attachment 1 Pro forma income statement for the first year of operations.
net sales $200,000
cost of goods sold $130,000
gross profit $70,000
overheads $50,000
depreciation $90,000
operating profit (EBIT) -$70,000
interest $21,000
pre-tax profit -$91,000
tax $0 (no tax is paid on negative earnings)
net income -$91,000
Note that for net present value analysis, operating cash flow should be estimated based on after-tax operating profit that excludes interest tax shield.
depreciation schedul year one
book value starting balance $600,000
depreciation $90,000
book value ending balance $510,000
[1] If you use CCA formula, your payback and discounted payback will be slightly different than if you include depreciation in the income statement.
[2] If you are interested to learn how Canadian provinces impose barriers on beer trade from other provinces, check out www.realbeer.com/library/authors/hughey-r/distribution.php.
[3] Reduced federal income tax rate of eleven percent applies to small business income up to $500,000. The limit was raised from $400,000 as of 2009. See www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/rts-eng.html.
[4] New small business tax deduction effectively eliminated the Nova Scotia corporate income tax for the first three taxation years of a new small business after incorporation. The corporation must apply each year to the Nova Scotia Minister of Finance for a Nova Scotia Tax Deduction Eligibility Certificate. Check www.novascotia.ca/finance/en/home/taxation/businesstax/corporateincometax/newsmallbusinesstaxdeduction/default.aspx.
[5] Corporate income tax rate of 4.5 per cent applies up to the Nova Scotia business limit of $400,000 in taxable earnings. This rate is also known as the Small Business Rate and applies to all Canadian-controlled private corporations with limited taxable capital. You may wish to check out www.novascotia.ca/finance/en/home/taxation/businesstax/corporateincometax/default.aspx.
[6] Industry Canada – www.ic.gc.ca – FAQ says that maximum fixed rate on a small business loan equals the lenders’ single family residential mortgage rate plus three percent. Currently, five-seven year mortgages are offered at approximately four percent, so the rate on the loan is set at seven percent.
The writer is very fast, professional and responded to the review request fast also. Thank you.
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