What is the net present value using these alternative estimates?

ACC 560 Week 8 Assignment
P12-5A Bonita Corp. is thinking about opening a soccer camp in
southern California. To start the camp, Bonita 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, Bonita 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 dorm and dining facility $600,000
Annual cash inflows assuming 150 players and 8 weeks $950,000
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. Should the project be accepted?
b) To gauge the sensitivity of the project to these estimates,
assume that if only 125 campers attend each week, annual cash inflows
will be $800,000 and annual cash outflows will be $770,000. What is the
net present value using these alternative estimates? Should the project
be accepted?
c) Assuming the original facts, what is the net present value if the
project is actually riskier than first assumed, and a 11% discount rate
is more appropriate? Should the project be accepted?
d) Assume that during the first 5 years the annual net cash flows
each year were only $45,000. At the end of the fifth year the company is
running low on cash, so management decides to sell the property for
$1,300,000. What was the actual internal rate of return on the project?

 

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