Suppose a team operates in a stadium with 75,000 capacity and currently charges $85 per ticket, and plays 10 games a seasons to a sell out crowd. The proposal is to build a new stadium, at a cost of $600 million. Assume that construction would require $200 million to be spent immediately and $200 million each in years 1 and 2. If the new stadium is not built, the present value of extra maintenance costs for the old stadium is $200 million. The new stadium will reduce capacity to 55,000 and has a useful life of 25 years from completion. Assume that additional capacity is sold out, that the ticket price is increased to $150. What is the present value of the new arena investment if the discount rate is 0.1%? A) 68.75 million B) 35.73 million C) 62.39 million D) 10.72 million
Suppose a team operates in a stadium with 75,000 capacity and currently charges $85 per ticket, and plays 10 games a seasons to a sell out crowd. The proposal is to build a new stadium, at a cost of $600 million. Assume that construction would require $200 million to be spent immediately and $200 million each in years 1 and 2. If the new stadium is not built, the present value of extra maintenance costs for the old stadium is $200 million. The new stadium will reduce capacity to 55,000 and has a useful life of 25 years from completion. Assume that additional capacity is sold out, that the ticket price is increased to $150.
What is the present value of the new arena investment if the discount rate is 0.1%?
A) 68.75 million
B) 35.73 million
C) 62.39 million
D) 10.72 million
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