Amal is considering opening a university in Kabul. In order to begin, she would need to purchase land, build offices and construct a dormitory for 200 students. Each year the university would run for 10 short semesters of one week each. She would hire graduate students as instructors and the ages of students are expected to be between 17 - 19. Amal expects that after 20 years, she will sell the land and building for more than its original purchase price. The following amounts have been estimated: Cost of land $ 730,000 Cost to build dorm and dining facility 2,000,000 Annual cash inflows assuming 100 players and 10 weeks 2,500,000 Annual cash outflows 2,250,000 Estimated useful life 20 years Salvage value 4,400,000 Discount rate 10% (a) Calculate the net present value of the project. (b) Now assume that if only 80 students attend each week, revenues will be $2,005,000 and expenses will be $1,860,000. What is the net present value using these alternative estimates? Discuss your findings. (c) Assuming the original facts, what is the net present value if the project is actually riskier than first assumed, and a 12% discount rate is more appropriate?
Amal is considering opening a university in Kabul. In order to begin, she would need to purchase land, build offices and construct a dormitory for 200 students. Each year the university would run for 10 short semesters of one week each. She would hire graduate students as instructors and the ages of students are expected to be between 17 - 19. Amal expects that after 20 years, she will sell the land and building for more than its original purchase price. The following amounts have been estimated:
Cost of land $ 730,000
Cost to build dorm and dining facility 2,000,000
Annual
Annual
Estimated useful life 20 years
Salvage value 4,400,000
Discount rate 10%
(a) Calculate the
(b) Now assume that if only 80 students attend each week, revenues will be $2,005,000 and expenses will be $1,860,000. What is the net present value using these alternative estimates? Discuss your findings.
(c) Assuming the original facts, what is the net present value if the project is actually riskier than first assumed, and a 12% discount rate is more appropriate?
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