Ask Experts Questions for FREE Help !
Ask
    teresa3170's Avatar
    teresa3170 Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Apr 28, 2013, 10:33 AM
    NPV question - Please help
    The Columbus Blue Jackets are contemplating moving to Kansas City. The Blue Jackets have been investigating this possibility for the last two years. The following data pertains to this decision:



    1. $2 million has been spent in market research to determine if Kansas City is a viable market. The results of the research show that Kansas City could support an NHL franchise.



    2. The Blue Jackets current lease at Nationwide Arena has a provision that allows them to leave after the 2012-13 NHL season by paying a penalty of $10 million.



    3. Moving costs to relocate the team and executives is estimated to be between $3 and $5 million.



    4. A new stadium is being constructed by the Kansas State Government at no cost to the NHL franchise that relocates to Kansas City.



    5. The lease payments required to use the stadium built by the Kansas State Government are as follows: $5 million annually for the first 5 years, $7.5 million each year for the subsequent 3 years, and $10 annually after that.



    6. Revenues from season tickets are expected to exceed revenues from season tickets in Columbus as follows:



    a. Years 1— 5: $2.5 million per year



    b. Years 6 — 8: $3 million per year if the team makes the playoffs at least two of the preceding years and by only $1 million otherwise. Management believes there is an 80% chance for the team to qualify twice in the next 5 years.



    c. Years 9 and beyond: $4 million per year



    7. Luxury Box sales, which currently do not go to the NHL Franchise while in Columbus, are expected to be split evenly between the Kansas State Government and the Kansas City NHL Team. The total revenue from the luxury boxes is expected to be $1.5 million per year with a $5 million seat license due from patrons prior to year 1. After year 1, revenues are expected to increase at 10% per year.



    8. The shared NHL league revenue will remain at $10 million per year regardless of where the NHL franchise is located.



    9. The relevant interest rate for this problem is 9%, although given the risky nature of the potential move, the owner believes this interest rate should increase to 10% after year 6.



    10. The current NPV for the Columbus Blue Jackets, assuming they remain in Columbus, is $60 million.



    Should the Blue Jackets move? Why or why not?

Check out some similar questions!

Npv question solution? [ 0 Answers ]

Neat Frankies is looking at a new cooking system with an installed cost of Rs440,000. This cost will be depreciated straight line to zero over the project?s 5-yr life, at the end of which the system can be scrapped for Rs60,000. The system will save the firm Rs130,000 per year in pretax operating...

Npv [ 0 Answers ]

Machine 1 cost 150,000. Machine 2 cost 100,000. Cost of capital for both investment 9.5%. Life of both 5 years. Cash flow machine 1 17,000 per year during period and cash flow for machine 2 8000 per period per year. Cash flow include depreciation expenses. Calculate NPV and IRR for each machine...

How do I get the NPV of the following [ 2 Answers ]

I need to conduct a discounted cash flow calculation to determine the NPV of the following project, assuming a required rate of return of 0.2. The project will cost $75,000 but will result in cash inflows of $20,00, $25,000,$30,000,and $50,000 in each of the next 4 years. Please help and if you...

View more questions Search
 

Question Tools Search this Question
Search this Question:

Advanced Search

Add your answer here.