Pine Village council proposes to construct new recreation fields. Construction will cost $350,000 and annual O&M...

Pine Village council proposes to construct new recreation fields. Construction will cost $350,000 and annual O&M expenses are $80,000. The city council estimates that the value of added youth leagues is about $125,000 annually. In year 6 another $90,000 will be needed to refurnish the fields. the city council agrees to transform the ownership of the fields to a private company for $150,00 at the end of year 10.

a. Draw the cash flow diagram.

b. If the MARR for the Pine Village city is 5%, calculate the NPV of the new recreation field project.

Expert Solution

(a): Net cash flows in year 1- 5 = -80,000 + 125,000 = 45,000

Net cash flow in year 6 = -80,000+125,000-90,000 = -45,000

Cash flows in year 7 - 9 = 45,000 (just like years 1-5)

Cash flow in 10th year = -80,000+125,000+150,000 = 195,000

The cash flow diagram is shown below:

In the above cash flow diagram the first column is for the year 0 cash flow and the last column is for the year 10 cash flow.

(b): NPV = $22,405.67

Year	Cash flow	1+r	PVIF	PV
0	- 350,000	1.05	1.0000	- 350,000.00
1	45,000		0.9524	42,857.14
2	45,000		0.9070	40,816.33
3	45,000		0.8638	38,872.69
4	45,000		0.8227	37,021.61
5	45,000		0.7835	35,258.68
6	- 45,000		0.7462	- 33,579.69
7	45,000		0.7107	31,980.66
8	45,000		0.6768	30,457.77
9	45,000		0.6446	29,007.40
10	195,000		0.6139	119,713.08

			*Total*	*22,405.67*

jeff jeffy answered 1 year ago

Pine Village City council proposes to construct new recreation fields. Construction will cost $350,000 and Annual...

Pine Village City council proposes to construct new recreation fields. Construction will cost $350,000 and Annual expenses are $80,000. The city council estimates that the valve of added youth leagues is about $125,000 annually. In year 6 another $90,000 will be needed to refurbish the fields. The city council agrees to transform the ownership of the field to a private company for $150,000 at the end of year 10. a. Draw the cash flow diagram. b. If the MARR for...

A company purchased land on which to construct a new building for a cost of $350,000....

A company purchased land on which to construct a new building for a cost of $350,000. Additional costs incurred were: Real estate broker's commissions…………………………. $24,500 Legal fees incurred in the purchase of the real estate………… 1,500 Landscaping……………………………………………….. 8,000 Cost to remove old house located on land…………… 3,000 Proceeds from selling materials salvaged from old house 1,000 What total dollar amount should be charged to Land and what amount should be charged to Building or other accounts? Show your work 5...

Arlington, Texas wants to build a new recreation center. The estimated cost of construction cost us...

Arlington, Texas wants to build a new recreation center. The estimated cost of construction cost us $14 million with annual staffing and maintenance costs of $520,000 per year over the twenty-year life of the center. At the end of the life of the center, Arlington expects to sell the land for $5 million, though that figure might be as low as $1 million and as high $ 9 million. City staff estimate first year benefits to be $2.1 million (accruing...

Alternative 1 has a capital cost of $2,069,000 and annual O&M cost of $348,000 Alternative 2...

Alternative 1 has a capital cost of $2,069,000 and annual O&M cost of $348,000 Alternative 2 has a capital cost of $7,182,000 and annual O&M cost of $394,000 Number of years = 30, interest rate = 3% Compare the two alternatives using the present worth method AND annual cost method. Which is least costly? Are the conclusions same for each method?

The annual maintenance and operating (M&O) cost was estimated to be $2,500 in Year 1 through...

The annual maintenance and operating (M&O) cost was estimated to be $2,500 in Year 1 through Year 4, and $4,400 in Year 5 through Year 9. Estimate the future value of the M&O cost (at t=9) with an interest rate of 11% per year.

Alternative R has a first cost of $88,000, annual M&O costs of $62,000, and a $20,000...

Alternative R has a first cost of $88,000, annual M&O costs of $62,000, and a $20,000 salvage value after 5 years. Alternative S has a first cost of $175,000 and a $58,000 salvage value after 5 years, but its annual M&O costs are not known. Determine the M&O costs for alternative S that would yield a required incremental rate of return of 23%. The M&O cost for alternative S is $

Question