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Coolplay Corp Is Thinking About Opening A Soccer Camp in

Coolplay Corp is considering opening a soccer camp in Southern California. The camp would require purchasing land and building facilities including four soccer fields and housing for 150 players. Over 20 years, the camp would generate $920,000 annually and be sold for $1.5 million, yielding a positive net present value at an 8% discount rate.

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Muhammad Shahid
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246 views2 pages

Coolplay Corp Is Thinking About Opening A Soccer Camp in

Coolplay Corp is considering opening a soccer camp in Southern California. The camp would require purchasing land and building facilities including four soccer fields and housing for 150 players. Over 20 years, the camp would generate $920,000 annually and be sold for $1.5 million, yielding a positive net present value at an 8% discount rate.

Uploaded by

Muhammad Shahid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Coolplay Corp is thinking about opening a soccer camp in

#6074
Coolplay Corp is thinking about opening a soccer camp in

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 .............................................................. $300,000

Cost to build soccer fields, dorm and dining facility ................ $600,000

Annual cash inflows assuming 150 players and 8 weeks ............ $920,000

Annual cash outflows ..................................................... $840,000

Estimated useful life ...................................................... 20 years

Salvage value .............................................................. $1,500,000

Discount rate ............................................................... 8%

Instructions

(a) Calculate the net present value of the project.

(b) To gauge the sensitivity of the project to these estimates, assume that if only 125 players
attend each week, annual cash inflows will be $805,000 and annual cash outflows will be
$750,000. What is the net present value using these alternative estimates? Discuss your
findings.

(c) Assuming the original facts, what is the net present value if the project is actually riskier than
first assumed and an 10% discount rate is more appropriate?

(d) Assume that during the first 5 years, the annual net cash flows each year were only $40,000.
At the end of the fifth year, the company is running low on cash, so management decides to sell
the property for $1,332,000. What was the actual internal rate of return on the project? Explain
how this return was possible given that the camp did not appear to be successful.
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Coolplay Corp is thinking about opening a soccer camp in

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