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Discount rate Instructions (a) Calculate the net present value of the project. (b) To gange the

Discount rate Instructions (a) Calculate the net present value of the project. (b) To gange the

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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please answer the 3 parts a, b,c

P24-5A Coolplay Corp. is thinking about opening a soccer camp in southern California. To start the camp, Coolplay would need to purchase land and build four soccer fields and a sleeping and dining facility to house 150 soccer players. Each year, the camp would be run for 8 sessions of 1 week each. The company would hire college soccer players as coaches. The camp attendees would be male and female soccer players ages 12-18. Property values in southern California have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Coolplay can sell the property for more than it was originally purchased for. The following amounts have been estimated. Cost of land Cost to build soccer fields, dorm and dining facility Annual cash inflows assuming 150 players and 8 weeks Annual cash outflows Estimated useful life Salvage value Discount rate $300,000 $600,000 $920,000 $840,000 20 years $1,500,000 8% Instructions (a) Calculate the net present value of the project. (b) To gauge the sensitivity of the project to these estimates, assume that if only 125 players attend each week, annual cash inflows will be $805,000 and annual cash outflows will be $750,000. 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 an 10% discount rate is more appropriate? (a (d) Assume that durin
Transcribed Image Text:P24-5A Coolplay Corp. is thinking about opening a soccer camp in southern California. To start the camp, Coolplay would need to purchase land and build four soccer fields and a sleeping and dining facility to house 150 soccer players. Each year, the camp would be run for 8 sessions of 1 week each. The company would hire college soccer players as coaches. The camp attendees would be male and female soccer players ages 12-18. Property values in southern California have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Coolplay can sell the property for more than it was originally purchased for. The following amounts have been estimated. Cost of land Cost to build soccer fields, dorm and dining facility Annual cash inflows assuming 150 players and 8 weeks Annual cash outflows Estimated useful life Salvage value Discount rate $300,000 $600,000 $920,000 $840,000 20 years $1,500,000 8% Instructions (a) Calculate the net present value of the project. (b) To gauge the sensitivity of the project to these estimates, assume that if only 125 players attend each week, annual cash inflows will be $805,000 and annual cash outflows will be $750,000. 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 an 10% discount rate is more appropriate? (a (d) Assume that durin
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