Coolplay Corp. is thinking about opening a soccer camp in southern California. T
ID: 2800875 • Letter: C
Question
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 $302,400 Cost to build soccer fields, dorm and dining facility $604,800 Annual cash inflows assuming 150 players and 8 weeks $927,360 Annual cash outflows $846,720 Estimated useful life 20 years Salvage value $1,512,000 Discount rate 8%
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Explanation / Answer
First question: the project should be accepted, as NPV is positive.
workings:
Second question: the project should not be accepted, as NPV is negative (38482.16)
Third question: project should be accepted, NPV is positive 4077.16
Fourth question:
At 12% NPV is near zero hence IRR=12%
Particulars Amount Present value of annual cashflows 7,91,735.62 Present value of terminal cashflows 3,24,399.60 Present value of initial cashflows (9,07,200.00) Net present value 2,08,935.22