The professional football club, Hurst Academicals, is considering acquiring a highly successful German international footballer. The transfer fee will be £42m, half of which is payable immediately and the other half payable in one year's time. His annual salary during his 4-year contract will be £15.5 million. At the end of his contract, the player will have no resale value to the club. The club’s sponsor has agreed to increase the annual sponsorship fee from £4m to £16m, payable in advance. Annual income from gate money is expected to rise by £6m in year 1 and increase by 10% each year, thereafter. Merchandising income, from the sale of club shirts emblazoned with the player's name is expected to be £lm in year 1, rising by 5% each year. The player has a poor injury record and the club will pay an initial insurance premium of 10% of the transfer fee, payable in advance to protect the club ainst the risk of his contract coming to an early end as a result of this problem. As a consequence of this transfer, the club will be able to loan two other players to an inferior team, elsewhere in north London, thereby making annual salary savings of £9 million. Assume that all transactions are in cash and arise at the end of the year concerned except where indicated above. The company's cost of capital is 12%. Required: (a) Calculate the Net Present Value (NPV) of this acquisition.
The professional football club, Hurst Academicals, is considering acquiring a highly successful German international footballer. The transfer fee will be £42m, half of which is payable immediately and the other half payable in one year's time. His annual salary during his 4-year contract will be £15.5 million. At the end of his contract, the player will have no resale value to the club. The club’s sponsor has agreed to increase the annual sponsorship fee from £4m to £16m, payable in advance. Annual income from gate money is expected to rise by £6m in year 1 and increase by 10% each year, thereafter. Merchandising income, from the sale of club shirts emblazoned with the player's name is expected to be £lm in year 1, rising by 5% each year. The player has a poor injury record and the club will pay an initial insurance premium of 10% of the transfer fee, payable in advance to protect the club ainst the risk of his contract coming to an early end as a result of this problem. As a consequence of this transfer, the club will be able to loan two other players to an inferior team, elsewhere in north London, thereby making annual salary savings of £9 million. Assume that all transactions are in cash and arise at the end of the year concerned except where indicated above. The company's cost of capital is 12%. Required: (a) Calculate the Net Present Value (NPV) of this acquisition.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Question 21
The professional football club, Hurst Academicals, is considering acquiring a highly
successful German international footballer. The transfer fee will be £42m, half of
which is payable immediately and the other half payable in one year's time. His
annual salary during his 4-year contract will be £15.5 million. At the end of his
contract, the player will have no resale value to the club. The club’s sponsor has
agreed to increase the annual sponsorship fee from £4m to £16m, payable in
advance. Annual income from gate money is expected to rise by £6m in year 1 and
increase by 10% each year, thereafter. Merchandising income, from the sale of club
shirts emblazoned with the player's name is expected to be £lm in year 1, rising by
5% each year. The player has a poor injury record and the club will pay an initial
insurance premium of 10% of the transfer fee, payable in advance to protect the
club against the risk of his contract coming to an early end as a result of this
problem. As a consequence of this transfer, the club will be able to loan two other
players to an inferior team, elsewhere in north London, thereby making annual
salary savings of £9 million.
Assume that all transactions are in cash and arise at the end of the year concerned
except where indicated above. The company's cost of capital is 12%.
Required:
(a) Calculate the Net Present Value (NPV) of this acquisition.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education