Shilling Corp. is thinking about opening a baseball camp in Florida. In order to start the camp, the company would need to purchase land, build five baseball fields, and a dormitory- type sleeping and dining facility to house 100 players. Each year the camp would be run for 10 sessions of 1 week each. The company would hire college baseball players as coaches. The camp attendees would be baseball players age 12-18. Property values in Florida have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Shilling can sell the property for more than it was originally purchased for. The following amounts have been estimated: $ 600,000 2,100,000 Cost of land Cost to build dorm and dining facility Annual cash inflows assuming 100 players and 10 weeks Annual cash outflows Estimated useful life Salvage value Discount rate Present value of an annuity of 1 2,520,000 2,260,000 20 years 3,900,000 10% 8.514 Present value of 1 0.149

Shilling Corp. is thinking about opening a baseball camp in Florida. In order to start the camp, the company would need to purchase land, build five baseball fields, and a dormitory- type sleeping and dining facility to house 100 players. Each year the camp would be run for 10 sessions of 1 week each. The company would hire college baseball players as coaches. The camp attendees would be baseball players age 12-18. Property values in Florida have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Shilling can sell the property for more than it was originally purchased for. The following amounts have been estimated: $ 600,000 2,100,000 Cost of land Cost to build dorm and dining facility Annual cash inflows assuming 100 players and 10 weeks Annual cash outflows Estimated useful life Salvage value Discount rate Present value of an annuity of 1 2,520,000 2,260,000 20 years 3,900,000 10% 8.514 Present value of 1 0.149

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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