SPT 620 5-2 Journal

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Southern New Hampshire University *

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620

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Business

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Jun 26, 2024

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docx

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3

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5-2 Journal SPT 620 Module 5-2 Journal Antonio M. Taul Southern New Hampshire University SPT 620 Finance & Economic of Sport Dr. Gentile June 16, 2024
Should We Invest? The organization wants to expand and add 5 new luxury suites to the stadium. Each suite is expected to provide 10 years of revenue yielding $25,000 a year. The cost of this construction will be $100,000. Assuming the rate of return is at 10%, we will acknowledge if this is a good investment for the organization. Also, calculate the net present value based on the generated revenues. First, we will focus on the NPV or Net Present Value. The Net Present Value (NPV) is the calculation of all future cash flows over the life of an investment. “Net present value is used to determine whether or not an investment, project, or business will be profitable down the line. The NPV of an investment is the sum of all future cash flows over the investment’s lifetime, discounted to the present value.” (Girardin, 2023) To calculate the NPV you need to identify the cash flows, discount them to present value, and subtract the initial investment from the discounted flows. The formula is NPV= Cash flow/(1+r)+Cash flow/(1+r)+Cash flow/(1+r)-Initial Investment. Cash flow would be represented by the sum of money spent and earned. R is the discounted rate and n is the period of time. The period of time would be the length of the project. After calculating a percentage of 10% over 10 years, the NPV comes out to $- 346,385.82. If we’re going to determine whether or not this is a good or bad investment, after calculating the NPV and getting a negative value, it is apparent that at a 10% return, this would not be a good investment. In this case, the negatives far outweigh the positives. There are many cons to this investment which ultimately deems it a bad investment. A negative NPV shows a net loss meaning that the investment will be unprofitable at this return percentage. Ultimately at this rate of return, the project should not be pursued moving forward. However, this information allows us to calculate the numbers to estimate a positive NPV in the future. Possibly raising the construction price and estimation of revenues generated by the suites. Although the NPV is negative, the total revenues generated from each suite over the ten years will far exceed the construction costs. Thus making it profitable in the long run.
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