In: Accounting
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 | $331,500 | ||
Cost to build soccer fields, dorm and dining facility | $663,000 | ||
Annual cash inflows assuming 150 players and 8 weeks | $1,016,600 | ||
Annual cash outflows | $928,200 | ||
Estimated useful life | 20 years | ||
Salvage value | $1,657,500 | ||
Discount rate |
8% |
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.)
PRESENT VALUE OF project = annual net cash flow * PVAF (8%,20) + Salvage value * PVF(8%,20) - cost of land - cost to build soccer field |
|
=((1016600-928200)*9.81815 )+ (1657500* 0.21455) -(331500+663000) | |
229,041 | |
NPV = $229041 | |
The project should be Accepted | |