The Hungtitons Centre is an agricultural research facility that is funded through provincial and federal grants. Most of the centres work is focused on developing new innovations that help produce higher yields in crops and better quality of food products. Recently the centre has become interested in biofuels. It plans to implement a new project that has the objective of growing switch grass, a crop that has potential to replace fossils and decrease dependence on them.

In January 2020, the government has committed a one-time grant of $800,000 to the centre that will be restricted to purchasing land that will be used to produce biofuels. With this grant, the centre is planning to purchase a 200-acre plot of land for growing switch grass. They have estimated that they will require three workers to clear, plant, maintain, and harvest the crop. They anticipate that they will need these additional staff for eight months of the year. The staffing costs will be approximately $15 per hour for approximately eight hours per day, 20 days per month. Other costs will include seeds, water, and utilities at $3 per tonne, while accumulated depreciation on the equipment will total $10,000.

Once the crop has been harvested, they will send the grass to a facility that will manufacture fuel pellets. This will cost the centre approximately $10 per tonne of grass. Each acre that is planted is expected to return two tonnes of switch grass. Once the fuel pellets are produced, the organization is planning to sell the pellets to local homeowners who have converted their standard gas furnaces to pellet furnaces. It is estimated that approximately two acres of switch grass will be required to heat an average-sized home for the winter. The cost to the homeowners will be $100 per tonne of grass.

Erin Mcguire, the director of the Hungtitons Research Centre, has asked you to provide an overall budget for this venture. He is hoping that your report will support his belief that this project is viable and will be self-sustaining. He tells you that it is very important for the project to support itself through the sale of pellets.

Required

1. Prepare a budget for the project. Does this appear to be a viable venture for the Hungtitons Research Centre? What changes, if any, need to be made to improve the projects viability?

2. Every project comes with a degree of risk. What are the specific risks associated with this venture, and how can the centre mitigate these risks?