Kalispell Sports Inc. (KSI) is working on a plan to open a new ski resort in Montana. There are

five areas under consideration for development, and KSI has compiled data on trails, lifts, land

costs, and visitation for each site. KSI has hired you to analyze their data and make a

recommendation as to which site (or sites) would be the most profitable. Assume a 1-year

construction period, a 10% discount rate, and a project life of 50 years.

The five areas being considered are Elkhorn Valley, Wood River, Warm Springs, Coolngreen

Meadows, and Yankee Fork. Each of these areas differ with respect to size, terrain, and

accessibility. The construction costs for each area will be incurred throughout the first year, but

will be paid at the end of the year. Land costs will have to be paid before any construction can

begin. The only source of revenue for the ski resorts is from the sale of lift tickets. The cost of

building one restaurant is $75,000 and the cost of building a lift is $100,000 per mile. Assume

all the restaurants will break even.

Determine the NPV for each potential project and show your work.

Scenario 1

If KSI doesn't have a budget constraint, which ski areas would you recommend developing?

Scenario 2

If KSI has a budget constraint of $125,000,000, which ski areas would you recommend?