Question
In: Accounting
The city of Miami has received a proposal to build a new multipurpose outdoor sports stadium....
The city of Miami has received a proposal to build a new multipurpose outdoor sports stadium. The expected life of the stadium is 20 years. It will be financed by a 20-year industrial development bond that will require a payment of 8 percent interest annually. The stadium’s primary tenant will be the city’s Triple-A baseball team, the Mudhawks.
The plan’s backers anticipate that the new facility will also be used for rock concerts and college and high school sports events. The city does not pay any taxes. The city’s cost of capital is 8 percent. The costs and estimated revenues generated from the facility are presented as follows:
|
Cash Outflows |
|
|
Construction costs |
$12,000,000 |
|
General maintenance (including labor) |
$250,000 per year |
|
Cash Inflows |
|
|
Mudhawks’ lease payment |
$650,000 per year |
|
Concerts |
$600,000 per year |
|
College and high school sports |
$50,000 per year |
Required:
|
a. |
Scenario A - Determine if it is advisable for the city to build the new stadium under the assumption that the Mudhawks will not leave if the city does not build the new stadium? State your reasoning (Assume payments are made at the end of the year.) |
|
b. |
Scenario B – Assume now that the Mudhawks have threatened to move out of Miami if they do not get a new stadium. The city controller estimates that the move will cost the city $350,000 per year for 10 years in lost taxes, parking, and other fees. Should the city build the stadium now? State your reasoning. |
Solutions
ekkarill92 answered 9 months agoRelated Solutions
Toledo Stadium The city of Toledo has received a proposal to build a new multipurpose outdoor...
Toledo Stadium
The city of Toledo has received a proposal to build a new
multipurpose outdoor sports stadium. The expected life of the
stadium is 20 years. It will be financed by a 20-year bond paying 8
percent interest annually. The stadium's primary tenant will be the
city's Triple-A baseball team, the Red Hots. The plan's backers
anticipate that the site also will be used for rock concerts and
college and high school sports. The city does not pay any...
The city of Hamiltown decides to build a new basketball stadium to attract the team from...
The city of Hamiltown decides to build a new basketball stadium
to attract the team from Jacksondale (NB: this is almost always a
bad decision for cities as extensive research on the local economic
effects of sporting events has shown). One economic adviser
suggests that the stadium should be financed by a 2 year sales tax
of 10%, while another adviser recommends that the stadium be
financed by a 20 year sales tax of 1%. Assume the interest rate is...
Stanford Company has contracted to build for the City of New London a new courthouse. The...
Stanford Company has contracted to build for the City of New
London a new courthouse. The estimated cost of the project is
$6,000,000, and the contract price is $9,000,000. The courthouse
took three years to complete as follows:
2018
2019
2020
Costs to
date
$1,500,000
$4,000,000
$6,200,000
Cost to
complete
$4,500,000
$2,200,000
$0
Amounts billed to date
$1,400,000
$5,800,000
$9,000,000
Amounts collected to date
$1,300,000
$4,300,000
$9,000,000
Determine the gross profit to be recognized for
2018 ...
Stanford Company has contracted to build for the City of New London a new courthouse. The...
Stanford Company has contracted to build for the City of New
London a new courthouse. The estimated cost of the project is
$6,000,000, and the contract price is $9,000,000. The courthouse
took three years to complete as follows:
2018
2019
2020
Costs to
date
$1,500,000
$4,000,000
$6,200,000
Cost to
complete
$4,500,000
$2,200,000
$0
Amounts billed to date
$1,400,000
$5,800,000
$9,000,000
Amounts collected to date
$1,300,000
$4,300,000
$9,000,000
Determine the gross profit to be recognized for
2018 ...
The City of Pawnee, IN (not a real city) is planning to build a new hospital...
The City of Pawnee, IN (not a real
city) is planning to build a new hospital next year that has a
property value of $100 million. The Pawnee government plans to keep
the property tax rate the same every year and to provide the same
government services as they did last year. That is, the total
budgeted expenditures and income from other sources will remain
unchanged. Note: This question does not require any numerical
calculations.
Will the average amount of...
A city with 4% unemployment and no inflation is considering building a new stadium for its...
A city with 4% unemployment and no inflation is considering
building a new stadium for its professional football team. The team
currently plays in an old stadium owned by the city. It would cost
city $500M (M for million) to demolish the old stadium and build a
new one at the same location, which the city owns. The new stadium
would be expected to last for 40 years and the city would finance
the costs of the project by borrowing...
Hyde Park Elementary has plans to build a new playground in 2017. They received a $120,000...
Hyde Park Elementary has plans to build a new playground in
2017. They received a $120,000 government grant to be used for
building the playground. They are hoping to break ground in May
2017 and complete the project by the start of school in September.
Before they can start the project, however, they must dismantle the
existing playground that has become unsafe based on current safety
standards. They are also planning to complete soil testing once the
existing playground is...
The Montgomery Biscuits recently announced plans to build a new $35,000,000 baseball stadium in Montgomery, Alabama....
The Montgomery Biscuits recently announced plans to build a new
$35,000,000 baseball stadium in Montgomery, Alabama. The Biscuits
play in the Southern League and are the Double-A farm club of the
Tampa Bay Rays. The operating costs of the new 10,000 seat stadium
are expected to average $300,000 per year for the first fifteen
years, then they are expected to increase by $20,000 per year for
the next ten years, after which they will remain constant
throughout the life of...
The municipality of a major city in Quebec is planning to build a new bridge to...
The municipality of a major city in Quebec is planning to build
a new bridge to decrease the traffic load on the existing bridges
connecting both sides of the city across the river. Construction is
to start in 2020 and is expected to take four years at a cost of
$25 million per year. After construction is completed, the cost of
operation and maintenance is expected to be $2.5 million for the
first year and to increase by 2.8% per...
Fun City has decided to build a new municipal water park with pools, water slides, and...
Fun City has decided to build a new municipal water park with
pools, water slides, and so forth. You have been hired to conduct a
study to determine if the water park can pass the test. A nearby
and very similar city currently has a water park similar to the one
Fun City is considering. The nearby city currently charges $10 for
admission and, on a typical day, attracts 4,000 persons. Last year,
it charged $15, but only attracted 3,000...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- "Ethical Considerations" Please respond to the following: Reflect upon the responsibilities placed on auditors by the...
- A Japanese company has a bond outstanding that sells for 93 percent of its ¥100,000 par...
- What is the difference among the principles of modularization, abstraction, encapsulation, and separation of interface and...
- An investment project costs $20,100 and has annual cash flows of $4,400 for six years. ...
- PUT IN JAVA PROGRAMMING The StockB class: Design a class named StockB that contains the following...
- Draw a DFA for the following ( ∑ = {0,1}): Set of all strings with.
- In the article from Forbes notes that the goal of a leader is not to clone...
ADVERTISEMENT