Question

Problem 12-5A a-c, d1 (Part Level Submission) (Video)

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		$300,300
Cost to build soccer fields, dorm and dining facility		$600,600
Annual cash inflows assuming 150 players and 8 weeks		$920,920
Annual cash outflows		$840,840
Estimated useful life		20 years
Salvage value		$1,501,500
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.)

Net present value

Answer 1

Solution:

Computation of NPV - Cool Play Corp.
Particulars	Period	Amount	PV factor at 8%	Present Value
Cash outflows:
Initial investment	0	$900,900.00	1	$900,900
Present Value of Cash outflows (A)				$900,900
Cash Inflows
Annual cash inflows	1-20	$80,080.00	9.8182	$786,237
Salvage value	20	$1,501,500.00	0.2146	$322,147
Present Value of Cash Inflows (B)				$1,108,384
Net Present Value (NPV) (B-A)				$207,484