Question

•Orlando has outgrown it’s Citrus Bowl stadium and has not been invited to host the best of College Football Championship games because of it.

•If a public works project (a very long term commitment) was planned in Orlando to construct a new, permanent football stadium, and it’s initial cost was $900M.

•The new stadium yearly maintenance cost was $1M/year for years 1-10, growing to $2M/year thereafter.

•The new stadium required repainting every 10 years at a cost of $2.5M

•The new stadium required a new grass surface every 5 years at a cost of $3M, and

•The new stadium had a one time Bond payment cost of $15M in year 30.

q1)What is the Present Worth cost of this permanent project if city money is available to be borrowed at 6%?

q2)What is the Annual amount/year Orlando will be committed to?

Answer 1

The problem persists to Capital Budgeting. We would use Net Present Value to derive the value of Future cash outflow to present value. For this we would use NPV (Net Present Value) function in Excel and add up all the cost associated with the project by assuming a 30 year period and using the following syntax.

Answer a) $ 879.92 million

Answer b) $29.33 million