2. 3 O years ago, the Hamilton Bulldogs, an amateur hockey team, purchased an ar
ID: 2789082 • Letter: 2
Question
2. 3 O years ago, the Hamilton Bulldogs, an amateur hockey team, purchased an arena (the defender) from the city of Hamilton for $500,000. Due to the age of the facility, operations and maintenance costs for the next year are $15,000 increasing at 1% per year. The arena could fetch $400,000 if sold as is-a price which is expected to increase at a rate of 10% annually due to real estate speculation. If the minimum EUAC of a new arena (the challenger) is $100,000 use replacement analysis, to determine if the Bulldogs should replace the arena in the next 3 years if MARR is 7 %. If so, when? (30 marks)Explanation / Answer
Replacement analysis for replacing the arena for Hamilton Bulldogs. Purchase cost 50years ago 500000 Scenario for the next 3 years 1 2 3 4 5 6 7 8 9 10 year maintainance increase@1% per year discounted repair cost Sale price increase @10% pa Present Value factor@7% Discounted sale price cumulative Discounted Repair cost Net Sale Price Replacement value for New Arena net benefit 1 15000 14018.69 400000 0.93 373831.78 14018.69 359813.08 100000 259813.08 2 15150 13232.60 440000 0.87 384313.04 27251.29 357061.75 100000 257061.75 3 15302 12490.58 484000 0.82 395088.17 39741.87 355346.30 100000 255346.30 4 15455 11790.18 532400 0.76 406165.41 51532.05 354633.37 100000 254633.37 5 15609 11129.04 585640 0.71 417553.23 62661.09 354892.14 100000 254892.14 Note:- 1- The maximum benefit of replacing the arena is in 1st year . Then the benefit to Hamilton Bulldogs going to reduce year by year. 2- In the 3rd year the net benefit from replacing the arena be $ 255346.30
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.