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Real Madrid stadium requires seats for home and away end. The seating project results in $1.2...

Real Madrid stadium requires seats for home and away end. The seating project results in $1.2 MM/yr of annual savings. The seating project requires a fixed capital investment of $3.5 MM. The working capital investment is taken as 15/85 of the fixed capital investment. The annual operating cost of the stadium seating is $0.5 MM/yr. Straight-line depreciation is calculated over 10 years (no salvage value). The corporate income tax rate for the project is 35%. Assuming a discount rate of 15%.. Assume that the FCI and WCI are expended immediately at the outset of the project.

a. Determine the NPV after 10 years, the Discounted Cash Flow Payback Period and the Discounted Cash Flow Return on Investment

Solutions

Expert Solution

Year 0 1 2 3 4 5 6 7 8 9 10
Capital Investment -3500000
Working capital -617647.0588
Annual Saving 1200000 1200000 1200000 1200000 1200000 1200000 1200000 1200000 1200000 1200000
Cost -500000 -500000 -500000 -500000 -500000 -500000 -500000 -500000 -500000 -500000
cash Flow 700000 700000 700000 700000 700000 700000 700000 700000 700000 700000
Depreciation -350000 -350000 -350000 -350000 -350000 -350000 -350000 -350000 -350000 -350000
Cash flow from opeartion 350000 350000 350000 350000 350000 350000 350000 350000 350000 350000
Tax -122500 -122500 -122500 -122500 -122500 -122500 -122500 -122500 -122500 -122500
Cash flow after tax 227500 227500 227500 227500 227500 227500 227500 227500 227500 227500
Add Depreciation 350000 350000 350000 350000 350000 350000 350000 350000 350000 350000
return of woking capital 617647.0588
Net cash flow -$41,17,647.06 $5,77,500.00 $5,77,500.00 $5,77,500.00 $5,77,500.00 $5,77,500.00 $5,77,500.00 $5,77,500.00 $5,77,500.00 $5,77,500.00 $11,95,147.06
Discount rate 15%
Discounted Cash flow -$41,17,647.06 $5,02,173.91 $4,36,672.97 $3,79,715.62 $3,30,187.50 $2,87,119.56 $2,49,669.19 $2,17,103.64 $1,88,785.77 $1,64,161.54 $2,95,422.07
NPV -$10,66,635.27
Discounted Cash Flow Return on Investment 8%
Discounted Payback more than 10 years

jeff jeffy answered 2 months ago
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