Suppose you are part of a group trying to lure an NBA franchise to your city. You have estimated the following costs and benefits: Year Benefits (millions) Costs (millions) Interest rate Inflation 1 5 70 05 04 2 15 2 .05 .03 3 18 5 .05 .03 20 5 05 .02 5 26 8 05 .01 a. Calculate the present value of benefits, taking into account inflation. b. As the table shows, there is an initial cost of $70 million (to renovate an existing stadium), followed by smaller amounts every year for maintenance. What is the present value of costs? Again, be sure to take into account inflation. ( c. Based on the costs and benefits, what is the net value of the NBA franchise? Is it worth it to convince them to move to your city?

Suppose you are part of a group trying to lure an NBA franchise to your city. You have estimated the following costs and benefits: Year Benefits (millions) Costs (millions) Interest rate Inflation 1 5 70 05 04 2 15 2 .05 .03 3 18 5 .05 .03 20 5 05 .02 5 26 8 05 .01 a. Calculate the present value of benefits, taking into account inflation. b. As the table shows, there is an initial cost of $70 million (to renovate an existing stadium), followed by smaller amounts every year for maintenance. What is the present value of costs? Again, be sure to take into account inflation. ( c. Based on the costs and benefits, what is the net value of the NBA franchise? Is it worth it to convince them to move to your city?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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