Goldbloom Corp. is thinking about opening a soccer camp in southern California.
ID: 2483205 • 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.Cost of land $327,000 Cost to build soccer fields, dorm and dining facility $654,000 Annual cash inflows assuming 150 players and 8 weeks $1,035,500 Annual cash outflows $915,600 Estimated useful life 20 years Salvage value $1,635,000 Discount rate 8%
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(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Explanation / Answer
(a). Net present Value of Project :
Year cash flow PVAF(8%,20years) PVF(8%,20years) Present Value
0 -327000 1 327000
0 -654000 1 654000
1-20 -915600 9.8181 - 8989452
1-20 1035500 9.8181 - 10166643
20 1635000 - 0.2145 350708
Net present value = present value of inflow - present value of outflow
= (10166643 + 350708) - (327000 + 654000 + 8989452)
= $10517351-$9970452
= $546899
The project should be accepted because the NPV is positive / more than zero
(b). The net present value using alternative estimates
Year cash flow PVAF(8%,20years) PVF(8%,20years) Present Value
0 -327000 1 327000
0 -654000 1 654000
1-20 -839300 9.8181 - 8240331
1-20 872000 9.8181 - 8561383
20 1635000 - 0.2145 350708
Net present value = present value of inflow - present value of outflow
= (8561383+350708) - (327000 + 654000 + 8240331)
= 8912091 - 9221331
= -$309240
The project should not be accepted because the NPV is negative / less than zero.
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