1. Calculate the net present value of the project. (use 3 decimal places for the PV factor)2. To gauge the sensitivity of the project to these estimates, assume that if only 80 campers attend each week, revenues will be $2,085,000 and expenses will be $1,865,000. What is the net present value using these alternative estimates? (use 3 decimal places for the PV factor)3. Assuming the original facts, what is the net present value if the project is actually riskier than first assumed, and a 12% discount rate is more appropriate? The present value of 1 at 12% is .104 and the present value of an annuity of 1 is 7.469. Shilling Corp. is thinking about opening a baseball camp in Florida. In order to start thecamp, the company would need to purchase land, build five baseball fields, and a dormitory-type sleeping and dining facility to house 100 players. Each year the camp would be run for10 sessions of 1 week each. The company would hire college baseball players as coaches.The camp attendees would be baseball players age 12-18. Property values in Florida haveenjoyed a steady increase in value. It is expected that after using the facility for 20 years,Shilling can sell the property for more than it was originally purchased for. The followingamounts have been estimated:Cost of landCost to build dorm and dining facilityAnnual cash inflows assuming 100 players and 10 weeksAnnual cash outflowsEstimated useful life$ 600,0002,100,0002,520,0002,260,00020 years0,00010%Salvage valueDiscount ratePresent value of an annuity of 1Present value of 18.5140.149

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Calculate the net present value of the project. (use 3 decimal places for the PV factor)

2. To gauge the sensitivity of the project to these estimates, assume that if only 80 campers attend each week, revenues will be $2,085,000 and expenses will be $1,865,000. What is the net present value using these alternative estimates? (use 3 decimal places for the PV factor)

3. 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? The present value of 1 at 12% is .104 and the present value of an annuity of 1 is 7.469.

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:
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
$ 600,000
2,100,000
2,520,000
2,260,000
20 years
0,000
10%
Salvage value
Discount rate
Present value of an annuity of 1
Present value of 1
8.514
0.149

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