Question

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		$331,800
Cost to build soccer fields, dorm and dining facility		$663,600
Annual cash inflows assuming 150 players and 8 weeks		$1,017,520
Annual cash outflows		$929,040
Estimated useful life		20 years
Salvage value		$1,659,000
Discount rate		8%

(a)

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.)

Net present value

$

Should the project be accepted?

Answer 1

Year
	0	1 to 20	20
Cash flows:
Cost of land	($331,800)
Cost to build soccer fields, dorm and dining facility	($663,600)
Annual cash inflows		$1,017,520
Annual cash outflows		($929,040)
Salvage value			$1,659,000
Total cash flows	($995,400)	$88,480	$1,659,000
Discount factor i = 8% , n = 20 years	1.00000	9.81815	0.21455
Net present value	($995,400)	$868,709.912	$355,938.45	$229,248.362

NPV = $229,248

The project should be accepted since NPV is positive.