【正文】 ital Allocation Policy.THE DECISIONKnowles believed that the project was consistent with the pany’s business strategy since it would ensure that the Winnipeg plant continued to be the low cost producer of frozen pizzas in Canada. However, she knew that her analysis must consider all factors, including the project’s net present value. The plant’s capital allocation review mittee would be following the procedures set out in the pany’s Capital Allocation Policy as the basis for reviewing her remendation.Knowles considered the implications if the project did not provide sufficient benefit to cover the Class 2 hurdle rate of 18%. Entering the . grocery chains market was a tremendous opportunity and she considered what other business could result from Laurentian’s increased presence. She also wondered if the hurdle rate for a project that was meant to increase capacity for an existing product should be similar to the pany’s cost of capital, since the risk of the project should be similar to the overall risk of the firm. She knew that Laurentian’s board of directors established a target capital structure that included 40% debt. She also reviewed the current Canadian market bond yields, which are listed in Exhibit 7. The spread between Government of Canada bonds and those of corporations with bond ratings of BBB, such as Laurentian, had recently been about 200 basis points (2%) for most longterm maturities. Finally, she discovered that Laurentian’s stock beta was , and that, historically, the Toronto stock market returns outperformed longterm government bonds by about 6% annually.EXHIBIT 1INCOME STATEMENTFor The Year Ending March 31($ millions) 1993 1994 1995 Revenues $ Cost of goods sold Gross ine Operating expenses Operating ine Interest Ine before tax Ine tax Net ine EXHIBIT 2BALANCE SHEETFor The Year Ending March 31($ millions) 1993 1994 1995 Assets: Cash $ Accounts Receivable Inventory Prepaid expenses Other current Total current Fixed assets: TOTAL Liabilities and Shareholder’s Equity: Accounts payable Other payable Total current Longterm debt Shareholder’s equity TOTAL EXHIBIT 3AUTHORIZATION FOR EXPENDITURE FORMCompany name: business segment: Project title: Project cost(AFE amount): Project cost(gross investment amount): Net present value at %: Internal rate of return: years payback Brief project description:Estimated pletion date: approvalsProject contact name:Phone:Fax:Name Signature DateCurrency used:CDN USOther Post audit:Company: yes no Corporate: yes no