Goldbloom Corp. is thinking about opening a soccer camp in southern California.
ID: 2467582 • Letter: G
Question
Goldbloom Corp. is thinking about opening a soccer camp in southern California. To start the camp, Goldbloom 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, Goldbloom can sell the property for more than it was originally purchased for. The following amounts have been estimated.
A.) Calculate the net present value of the project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125.)
B.) Should it be accepted?
C.) To gauge the sensitivity of the project to these estimates, assume that if only 125 players attend each week, annual cash inflows will be $864,000 and annual cash outflows will be $831,600.
What is the net present value using these alternative estimates? (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125.)
D.) Shoud it be accepted?
E.) Assuming the original facts, what is the net present value if the project is actually riskier than first assumed and a 11% discount rate is more appropriate? (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125.)
F.) Should it be accepted?
G.) Assume that during the first 5 years, the annual net cash flows each year were only $48,600. At the end of the fifth year, the company is running low on cash, so management decides to sell the property for $1,404,000. What was the actual internal rate of return on the project? (Round answer to 0 decimal places, e.g. 125.)
Explanation / Answer
Answer A. Calculation of NPV of Project Particulars Year Amount 8% Factor Present value C D C X D Cash Inflow Net Cash Inflow 1 -20 1,026,000 9.8181 10,073,371 Salavage Value 20 1,620,000 0.2145 347,490 A. Total Cash Inflow - PV 10,420,861 Cash Outflow Cost of Land 0 324,000 1.0000 324,000 Cost to build Soccer Field , dorm & Dinning facility 0 648,000 1.0000 648,000 Annual Cash outflow 1 -20 907,200 9.8181 8,906,980 B. Total Cash Outflow - PV 9,878,980 NPV (A - B) 541,880 Answer B. NPV is $541,880, so the Project should be accepted. Answer C. Calculation of NPV of Project Particulars Year Amount 8% Factor Present value C D C X D Cash Inflow Net Cash Inflow 1 -20 864,000 9.8181 8,482,838 Salavage Value 20 1,620,000 0.2145 347,490 A. Total Cash Inflow - PV 8,830,328 Cash Outflow Cost of Land 0 324,000 1.0000 324,000 Cost to build Soccer Field , dorm & Dinning facility 0 648,000 1.0000 648,000 Annual Cash outflow 1 -20 831,600 9.8181 8,164,732 B. Total Cash Outflow - PV 9,136,732 NPV (A - B) (306,404) Answer D. NPV is negative, so the Project should not be accepted. Answer E. Calculation of NPV of Project Particulars Year Amount 11% Factor Present value C D C X D Cash Inflow Net Cash Inflow 1 -20 1,026,000 7.9633 8,170,346 Salavage Value 20 1,620,000 0.1240 200,880 A. Total Cash Inflow - PV 8,371,226 Cash Outflow Cost of Land 0 324,000 1.0000 324,000 Cost to build Soccer Field , dorm & Dinning facility 0 648,000 1.0000 648,000 Annual Cash outflow 1 -20 907,200 7.9633 7,224,306 B. Total Cash Outflow - PV 8,196,306 NPV (A - B) 174,920 Answer F. NPV is $174,920, so the Project should be accepted. As per Chegg Guidelines, we can answer only one question at a time having four subparts. For other parts please ask it again.
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