Question:

Yukon Ltd is a Canadian department store. The Management have built up a successful business in the Yukon state and are considering expanding its sales outlets to one of three locations. It aims to buy a retail outlet of approximately 2800m². Costings and information associated with each capital investment is detailed below.

	Ontario	Manitoba	Nunavut
Data
Population of area	15 million	1.2 million	36,000
Affluence of population	High	Medium	Low
% of population in customer target age range	32%	36%	45%
Annual corporate tax rate, payable 9 months after year end	11.50%	15%	9.50%
Length of investment years	5	5	5
	Ontario	Manitoba	Nunavut
Costs and revenues (Canadian $)
Cost of retail space per m2	192.25	86.53	45.25
Estimate cost of purchasing a retail outlet of 2800m2	538,300	242,284	126,700
Refitting and rebranding costs	110,000	50,000	35,000
Recruitment and training of staff	18,000	12,000	11,000
Annual local business rates (property tax)	11,000	6500	4000
Resale value of property	350,000	135,000	55,000
Annual electricity costs to runs	32,000	28,000	18,000
Staffing costs	320,000	260,000	220,000
Maintenance	18,000	4,000	2,700
Annual Sales	922,000	770,000	634,000
Other running costs	136,000	145,000	108,500
Additional investment required in inventory	1,590,000	1,080,000	870,000
Additional funding required for credit customers (trade receivables)	85,000	55,000	95,000

Required: (show your workings for each answer)

a.Calculate the annual cash flows associated with each investment for years 0 to 5. You should make realistic assumptions concerning the timing of all cash flows if not specified above.

b;

i)Calculate the net present value for the three investments. If you have not attempted part a) assume a cost of capital of 7%.

ii):Calculate the Accountants rate of return for the three investments

iii):Interpret your results and provide a comprehensive discussion of the additional information that Yukon Ltd should consider before making a decision over which option to take.