Problem 12-5A LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT L
ID: 2414246 • Letter: P
Question
Problem 12-5A
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Problem 12-5A
Coolplay Corp. is thinking about opening a soccer camp in southern California. To start the camp, Coolplay 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, Coolplay 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 soccer fields, dorm and dining facility $636,000 Annual cash inflows assuming 150 players and 8 weeks $975,200 Annual cash outflows $890,400 Estimated useful life 20 years Salvage value $1,590,000 Discount rate 8%
Click here to view PV table. 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 to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Net present value $
Should the project be accepted?
The project
shouldshould not
be accepted.LINK TO TEXT
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To gauge the sensitivity of the project to these estimates, assume that if only 125 players attend each week, annual cash inflows will be $853,300 and annual cash outflows will be $795,000.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 to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Net present value $
Should the project be accepted?
The project
shouldshould not
be accepted.LINK TO TEXT
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Assuming the original facts, what is the net present value if the project is actually riskier than first assumed and a 10% 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 to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)Net present value $
Should the project be accepted?
The project
shouldshould not
be accepted.LINK TO TEXT
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Assume that during the first 5 years, the annual net cash flows each year were only $42,400. At the end of the fifth year, the company is running low on cash, so management decides to sell the property for $1,411,920. What was the actual internal rate of return on the project? (Round answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)Actual internal rate of return %
Explanation / Answer
Actual Rate of return is 12%
Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Part-1 Period PVF/PVAF Amount PV Initial Investment: -Land 0 1 -318000 -318000 -Build 0 1 -636000 -636000 8% 10% 1 0.925926 0.909091 Net Inflow 1-20 9.8181 84800 832575 2 0.857339 0.826446 (975200-890400) 3 0.793832 0.751315 Salvage Value 20 0.2145 1590000 341055 4 0.73503 0.683013 5 0.680583 0.620921 Net Present Value 219630 6 0.63017 0.564474 7 0.58349 0.513158 Yes, Should be accepted as NPV is more than zero 8 0.540269 0.466507 9 0.500249 0.424098 Part-2 Period PVF/PVAF Amount PV 10 0.463193 0.385543 Initial Investment: 11 0.428883 0.350494 -Land 0 1 -318000 -318000 12 0.397114 0.318631 -Build 0 1 -636000 -636000 13 0.367698 0.289664 14 0.340461 0.263331 Net Inflow 1-20 9.8181 58300 572395 15 0.315242 0.239392 853300-795000 16 0.29189 0.217629 Salvage Value 20 0.2145 1590000 341055 17 0.270269 0.197845 18 0.250249 0.179859 Net Present Value -40550 19 0.231712 0.163508 20 0.214548 0.148644 No, since NPV is below zero 9.818147 8.513564 Part-3 Period PVF/PVAF Amount PV Initial Investment: -Land 0 1 -318000 -318000 -Build 0 1 -636000 -636000 Net Inflow 1-20 8.5136 84800 721953 (975200-890400) Salvage Value 20 0.1486 1590000 236274 Net Present Value 4227 Yes