Goldberg Corp. is thinking about opening a soccer camp in southern California. T

Question

Goldberg Corp. is thinking about opening a soccer camp in southern California. To start the camp, Goldberg would need to purchase land and build four soccer fields and a sleeping and dining facility to house 150 soccer players. Each year the camp would be run for 8 sessions of 1 week each. The company would hire college soccer players as coaches. The camp attendees would be male and female soccer players ages 12-18. Property values in southern California have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Goldberg can sell the property for more than it was originally purchased for. The following amounts have been estimated.

Cost of land = $318,000
Cost to build dorm and dining facility = $636,000
Annual cash inflows assuming 150 players and 8 weeks = $1,007,000
Annual cash outflows = $890,400
Estimated useful life = 20 years
Salvage value = $1,590,000
Discount rate = 8%

Calculate the net present value of the project.

Explanation / Answer

Cost = P = - 318,000 - 636,000 = -954,000
Annuity = 1,007,000 - 890,400 = 116,600
Estimated useful life = N = 20 years
Salvage value = FV at year 20 = 1,590,000
Discount rate = 8%

NPV = -954,000 + 116,600 (P/A,i=8%,N=20) + 1,590,000 (P/F,i=8%,N=20)
NPV = -954,000 + 116,600 (9.818147) + 1,590,000 (0.214548)
NPV = -954,000 + 1,144,795.94 + 341,131.65
NPV = 531,927.59

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