West End Motors is a franchised dealership in Western Canada. W.B. Wilson, the President and GM, is considering a proposal for a new body shop facility. He is looking at a piece of land near the dealership to build the facility upon. Given the cost of purchasing the land, building the facility, and significant innovations and designs for the new facility, Wilson must decide whether it is profitable or not to take on the new proposal or remain operating his current body shop.
In order to effectively justify the investment decision, several alternatives are established:
1. Wilson can accept the proposal for the new body shop facility. Although it has a positive NPV, comparing to NPV of the current body shop, Wilson needs to cut off some budget.
2. Wilson rejects the new proposal, instead, he will continue operating the old one. At the same time, he can consult the Human Resource expertise to improve the high employment turnover rate. Some renovation can also be conducted on the current one.
3. Wilson would open the new body shop while keeping on operating the current one if there is no capital constrain, as both of them are generating positive NPVs.
4. Wilson could negotiate with the competitor companies and decide to sell his current body shop to the major competitor and monopolize the motor industry in town and gain the same or higher profits instead of running his old body shop.
Assuming that the estimates provided are correct and our assumptions discussed detailed in our report are practical, at 20% discount rate, the NPV of the old facility ($125,774) is almost double the NPV of the new facility ($65,607). Additionally, the new facility not only has a lower NPV than status quo, but is also more risky. Therefore, West End Motors should not make thi ...