iv) Working capital;
v) Commencement of projected cash flows (delay);
vi) Interest-bearing debt; and
vii) Financing costs.
Each of the adjustments are individually discussed below.
The difference between Low’s WACC (25 per cent to 27 per cent) and Rudson’s
WACC (21 per cent to 23 per cent) pertains to the company specific risk premium.
As instructed by Justice Gans, a midpoint of Low’s WACC and Rudso’s WACC of
24 per cent was utilized in the calculations attached hereto.
ii) Capital Expenditures
Low based his capital expenditures on discussions with management. Rudson
based his capital expenditures on Aquam’s financial statements and projections.
As instructed by Justice Gans, the midpoint of Low’s and Rudson’s amounts was
utilized in the calculations attached hereto.
iii) Income Taxes
Low’s income taxes reflect deductible interest at 12.25 per cent on the Wellington
loan until September 2019 (interest expense ceased thereafter).
Rudson’s income taxes reflect deductible interest at 12.50 per cent on the Wellington loan indefinitely.
A compromise has been adopted using 12.25 per cent until September 2019 and 6
per cent (estimated cost of debt) thereafter.
iv) Working Capital
Both valuators reduced projected cash flows for increased working capital
requirements which is based on growth in projected revenue. Because of the
8.5-month delay, Low utilized a lower revenue amount in 2017 than in 2016 causing the increase to projected revenues to be larger, thus increasing the first year’s
working capital requirements. Rudson has not considered any delay to the onset of
the projections and his working capital requirements are therefore lower. The difference, therefore, flows from the delay assumption and accordingly the calculations herein reflect the difference based on the delay periods discussed below.
Low disagrees with this characterization of the working capital difference relating
only to the first year of the projection. Low believes that the $400, 000 difference
should have been dealt with as a mid-point of $200, 000 throughout rather than on
a delay basis. Each of the amounts on the conclusion summary and Schedule 1 for
iv) working capital should have been ($200, 000) with commensurate effects on the
v) Commencement of Projected Cash Flows (Delay)
Low delays the commencement of the projected cash flows by 8.5 months. Rudson
does not delay the commencement of the projected cash flows.