help please and if you can show the math that would be super helpful The owners
ID: 1154670 • Letter: H
Question
help please and if you can show the math that would be super helpful
The owners of the Louisville River Bats (a minor league baseball team) have sufficient financial capital ($$) to undertake any or all of the following projects:
Buying a new scoreboard for their stadium that will last 3 years and produce $3000 worth of ad services the first year, $2000 the second year, and $1000 the third year.
Developing and building a video gaming room under their stadium that will last 5 years and produce $5000 worth of services each year.
Building a new restaurant just beyond the right field fence of their ballpark that will last 5 years and produce $30,000 worth of food and drink sales each year.
a. If the Bats owners’ only alternative to the above projects is putting their money in the bank and earning 5% interest, what is the present discounted value of each project’s revenue stream?
The PDV of project (I.)’s revenue stream is:
$6000
$5714
$5183
$5535
The PDV of project (II.)’s revenue stream is:
$25,000
$21,647
$23,809
$19,588
The PDV of project (III.)’s revenue stream is:
$150,000
$142,857
$129,884
$117,529
b. Project (I.) costs $5,800; project (II.) costs $20,000; and project (III.) costs $100,000. Assume these costs must be paid today, and that each project has no maintenance costs over its lifetime. What is the NPV of each project? Which project(s) will the Bats owners choose to undertake? Why? Remember they can afford any or all of the projects.
The NPV of project (I.) is:
$200
-$86
-$265
-$617
The NPV of project (II.) is:
$5000
$1647
$3809
-$412
The NPV of project (III.) is:
$50,000
$42,857
$29,884
$17,529
The Bats’ owners will choose to undertake project(s) ____________.
III. only
II. and III. only
I. and III. only
I., II., and III.
c. For each project(s) the owners are considering in (b), calculate its internal rate of return? [Hint: Think of the relationship between any given project’s IRR and their 5% opportunity cost rate of return. It will be necessary to use technology to answer these next three questions. You could use the “equation solver” command in Excel to do this...but you can’t do it without some computer/calculator help. Better yet, check out this very helpful website: https://www.calculatestuff.com/financial/irr-calculator ]
The IRR of project (I.) is:
3.45%
2.06%
1.14%
-3.45%
The IRR of project (II.) is:
4.56%
25%
5.24%
7.93%
The IRR of project (III.) is:
15.24%
11.36%
8.45%
25%
xi. Which of the following would increase, ceteris paribus, the IRR of the project in question?
a. A new Kentucky state law allows the Bats to finance half of the costs of the proposed new restaurant by issuing tax-exempt municipal bonds.
b. The video game machines can be sold for parts to an arcade center at the end of the video game room’s life.
Both (a) and (b) are true.
Neither (a) nor (b) is true.
Explanation / Answer
Help please and if you can show the math that would be super helpful
The owners of the Louisville River Bats (a minor league baseball team) have sufficient financial capital ($$) to undertake any or all of the following projects:
Buying a new scoreboard for their stadium that will last 3 years and produce $3000 worth of ad services the first year, $2000 the second year, and $1000 the third year.
Developing and building a video gaming room under their stadium that will last 5 years and produce $5000 worth of services each year.
Building a new restaurant just beyond the right field fence of their ballpark that will last 5 years and produce $30,000 worth of food and drink sales each year.
a. If the Bats owners’ only alternative to the above projects is putting their money in the bank and earning 5% interest, what is the present discounted value of each project’s revenue stream?
The PDV of project (I.)’s revenue stream is:
Present Value = $3000 (P/F, 5%, 1) + $2000 (P/F, 5%, 2) + $1000 (P/F, 5%, 3)
Present Value = $3000 (0.9524) + $2000 (0.9070) + $1000 (0.8638)
PW = 2857 + 1814 + 863.8
PW = $5,535
$5535
The PDV of project (II.)’s revenue stream is:
Present Value = $5000 (P/A, 5%, 5)
Present Value = $5000 (4.3295)
PW = $21,647
$21,647
The PDV of project (III.)’s revenue stream is:
Present Value = $30000 (P/A, 5%, 5)
Present Value = $30000 (4.3295)
PW = $129,884
$129,884
b. Project (I.) costs $5,800; project (II.) costs $20,000; and project (III.) costs $100,000. Assume these costs must be paid today, and that each project has no maintenance costs over its lifetime. What is the NPV of each project? Which project(s) will the Bats owners choose to undertake? Why? Remember they can afford any or all of the projects.
The NPV of project (I.) is:
NPV = -$5,800 + $5535 = -265
-$265
The NPV of project (II.) is:
NPV = -$20,000 + $21,647 = 1647
$1647
The NPV of project (III.) is:
NPV = -$100,000 + $129,884 = $29,884
$29,884
The Bats’ owners will choose to undertake project(s) ____________.
III. only
Highest NPV alternative project is to be selected.
(However, both alternative 2 and 3 can be selected as they have positive NPV)
c. For each project(s) the owners are considering in (b), calculate its internal rate of return? [Hint: Think of the relationship between any given project’s IRR and their 5% opportunity cost rate of return. It will be necessary to use technology to answer these next three questions. You could use the “equation solver” command in Excel to do this...but you can’t do it without some computer/calculator help.
The IRR of project (I.) is:
NPV = -$5,800 + $5535 = -265
NPV at 2% = -$5,800 + 3000 (P/F, 2%, 1) + $2000 (P/F, 2%, 2) + $1000 (P/F, 2%, 3)
NPV at 2% = -$5,800 + 3000 (0.9804) + $2000 (0.9612) + $1000 (0.9423) = 6
Using Interpolation IRR = 2% + [6 – 0 / 6 – (-265) * 3 = 2.06%
2.06%
The IRR of project (II.) is:
NPV = -$20,000 + $21,647 = 1647
NPV at 8% = -$20,000 + 5000 (P/A, 8% , 5)
NPV at 8% = -$20,000 + 5000 (3.9927) = -36
Using Interpolation IRR = 5% + [1647 – 0 / 1647 – (-36) * 3 = 7.93%
7.93%
The IRR of project (III.) is:
NPV = -$100,000 + $129,884 = $29,884
NPW at 16% = -$100,000 + 30,000 (P/A, 16%, 5)
NPW at 16% = -$100,000 + 30,000 (3.2743) = -1771
Using Interpolation IRR = 5% + [29884 – 0 / 29884 – (-1771) * 11 = 15.24%
15.24%
xi. Which of the following would increase, ceteris paribus, the IRR of the project in question?
a. A new Kentucky state law allows the Bats to finance half of the costs of the proposed new restaurant by issuing tax-exempt municipal bonds.
b. The video game machines can be sold for parts to an arcade center at the end of the video game room’s life.
Both (a) and (b) are true.
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