CALL IT "KAYAK"

Skyview Co$.($AC$)$ is a Canadian kayak manufacturer that has up to $$425,000$ to invest in either a new plant in Portland, Oregon or Burnaby, British Columbia.

The following information has been gathered on the two project alternatives: $($all funds are CDN $$)$

Burnaby, BC Portland, OR

Cost of building and equipment investment needed now $$415,000$ $$325,000$

Working capital investmeent needed now $($released in year $5)$ $$0$ $$80,000$

Annual net operating cash inflows for $5$ years $$105,000$ $$75,000$

Salvage value of equipment in year $5$ $$75,000$ $$0$

Maintenance on equipment required in year $3$ $$8,500$ $$7,000$

Additional information:

$-$ The equipment has a $5$ year life.

$-$The Oregon project would be the company$$s first manufacturing plant in the Unites States. $40\%$ of Skyview$$s distributors are located in California and Oregon. Skyview expects that due to similarities in Westcoast culture there should not be any significant challenges with the new plant; although Mark Peterson, head of Human Resources, has suggested planning would be necessary for the large Spanish speaking workforce.

$-$ The Burnaby project is located within $25$ kilometers of the company$$s head office. Due to the pandemic, there has been a large increase in outdoor activities including kayaking and the company expects to see continued growth. There have been some rumblings in the current workforce of unionization, but nothing formal has occurred.

$-$ Both projects will be implemented with a five year plan $$ at which time the company will reassess the viability. Any working capital investment will be released in year $5$ and invested elsewhere. Skyview$$s discount rate is $8\%$

$.$

REQUIREMENTS: $($do not leave Connect blank, input your final NPV for $1$ and $2)$

$1.$ Determine the net present value of the Burnaby project. $($you may use Excel or the discount tables, but show your work!$)4$ marks

$2.$ Determine the net present value of the Oregon project. $4$ marks

$3.$ Provide a qualitative analysis on Skyview$$s decision between Burnaby and Oregon projects. Make sure to list pros and cons of each project and conclude on which venture is better, from a qualitative perspective. $($a minimum of $2$ pros and $2$ cons per project$)5$ marks

$4.$ Based on both your quantitative and qualitative analysis, which project location do your recommend and why? $($not a one word answer, imagine you are speaking to the owner!$)2$ marks