PBC Ltd., a general insurance company, has historically focused its business strategy in eastern Ca
PBC Ltd., a unreserved insurance sodality, has historically focused its trade policy in eastern Canada. Administration is now regarding a sketch to swell into western Canada and, as a suffering, is evaluating the inauguration of an duty in Vancouver. If the duty turns out to be a prosperity, the sodality achieve then swell into other western Canadian cities. For strategic sketchning purposes, PBC uses a 4-year sketchning horizon for all of its excellent budgeting decisions. PBC has secure that homogeneous duty interinterinterval is available in Vancouver at an annual consume of $100,000, hired at the preface of each year. Given an redundancy of divulsional interspace, the sodality believes that it is unreasonable that there achieve be a divulsion growth for the foreseeable coming. Specialized computer equipment achieve accept to be purchased for the duty at a consume $250,000. The computer equipment achieve be amortized on a straight-line cause aggravate its estimated available condition of 4 years to a salvage esteem of 20% of primordial consume. Duty equipment achieve as-well accept to be purchased at a consume of $125,000. The duty equipment achieve be amortized on a straight-line cause aggravate 10 years delay naught expected salvage esteem. Management believes that the resale esteem of the duty equipment achieve resemble its magnitude esteem at any sharp-end in span. Finally, an judicious cannonade in net established excellent of $50,000 achieve be required, delay this cannonade life growthd by $15,000 at the preface of the third year. Based on its curdivulsion trade, administration believes that the new duty can propagate vulgar revenues of $500,000 in its foremost year of action and $750,000 in each of the after 3 years. Costs of unoccupied the duty (excluding divulsion and amortization) are expected to similar 80% of revenues. PBC’s tax rate is 34%, its weighted-average consume of excellent is 9%, and the convenient CCA rates on the computer equipment and the duty equipment are 30% and 15%, respectively. Required a. Based on the net confer-upon esteem (NPV) order, enumerate if PBC should unreserved the duty in Vancouver. (20 marks) b. As ordinary aloft, for purposes of excellent budgeting decisions, PBC uses a sketchning horizon of 4 years. i) Explain why firms energy restrict their sketchning horizon to a proportionately defective time such as 4 years. ii) Explain the virtual consequences of this sketchning horizon for excellent budgeting decisions.