(LONG ANSWER QUESTION 20 MARKS) Family Outdoor Resort (FOR) is deciding whether to expand its system of linked ski hills in British Columbia. All the hills would be accessed from a single parking/service area. The plan they are considering would involve installing new ski lifts and lodges on three different mountains over a five year period. FOR has also completed some calculations that indicate that when the project is finished in 5 years from now, it will have, at that time, a total value of 220 millions dollars including the benefit of CCA expenses. Observe the information on capital expenditures in the table below. Calculate the NPV of the project and make a recommendation to FOR. FORs bonds are rated BBB.

All amounts in millions of dollars

Cap Exp Year 1 Year 2 Year 3 Year 4 Year 5

Callis Mtn 12.4 10.5 6.0

Standhorn Mtn 13.5 9.5 3.0

Chandler Mtn 14.5 7.0 4.0

Parking lot 3.0

Terminal Value 220.0

Reminder: The CAPM formula for cost of equity is: KE = RFR + (Market Return RFR), and (Market Return RFR) = Market Risk Premium (MRP)

Data:

FOR's beta 1.2x

Risk free rate (RFR) 4.0%

Market risk premium 9.0%

FOR's tax rate 30%

Short term int rate (LIBOR) 2.53%

Current BBB spread to LIBOR 200 bps

Target capital structure(debt,equity) 20, 80