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		$330,900
Cost to build soccer fields, dorm and dining facility		$661,800
Annual cash inflows assuming 150 players and 8 weeks		$1,014,760
Annual cash outflows		$926,520
Estimated useful life		20 years
Salvage value		$1,654,500
Discount rate		8%

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(a)

Calculate the net present value of the project. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (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.

Answer 1

(a)

Calculation of NPV of Project:
Particulars	Year	Amount	8% Factor	Present value
		C	D	C X D
Cash Inflow:
Net Cash Inflow	1 -20	$1,014,760	9.81815	9,963,066
Salvage Value	20	$1,654,500	0.21455	354,973
A. Total Cash Inflow - PV				$10,318,039
Cash Outflow:
Cost of Land	0	$330,900	1.00000	303,900
Cost to build Soccer Field , dorm & Dinning facility	0	$661,800	1.00000	661,800
Annual Cash outflow	1 -20	$926,520	9.81815	9,096,712
B. Total Cash Outflow - PV				10,089,412
NPV (A - B)				$228,627

The project should be accepted.