WHAT DETERMINES THE VALUE OF CASH FLOWS? 1. size 2. timing 330K to 41 + $76,800...

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WHAT DETERMINES THE VALUE OF CASH FLOWS? 1. size 2. timing 330K to 41 + $76,800 " 411,800 3. riskiness/ uncertainty $100 (1,5) = +110 |.| You believe that there is a demand for off-campus housing near an up-state SUNY school. You take $300,000 and you buy an old-house 2 blocks from campus and you fix it up for $30,000. You put in 8 students, charge each $800/month and they all sign 3 year leases. After 3 years you can sell the house for $335,000. Forget about taxes. If I don't go ahead with this, I put my money in a money. market mutual fund earning 3% interest. r=5%+4%=9% TB TC....0 (76,800 + 76,800 + 411,800) - $330,000 >, < 0 (1.09) (1.09) 1.0933 $70,458 + 64,641 + 317,985)-330,000 = $123,084 >0 1+2+3+4+5+...+100 100 W {i 4 S 5/55 500 / + 4/14 3 T = zi (2.1) (2.2) (2.3) -3.6M to 10 $7M (1.06) 31 (47m) (106) (1.125) NPV = (1.125) i i=1 +. =48 tlo .+ (TM) (1.06) (1.125) 10 The San Antonio Diablos have reached out to Telemundo, a large Hispanic content cable firm with two offers for corporate sponsorships. The first is a naming deal for their stadium. Telemundo must pay $5.5m for the rights to have their name, logo, and tagline displayed prominently at 24 designated locations in and around the stadium for five years, after which the sponsorship will be renegotiated. The sponsorship is expected to raise Telemundo's revenues by about $1.25m per year. A second possibility would be for Telemundo's name and logo to be added to the team's uniforms for three years for $2.2m, which is expected to bring in an extra $900,00/year in additional revenues. Assume that Telemundo's discount rate is 12.5% for both sponsorships. A) Calculate the net economic benefits of these two offers and present them to Telemundo management. B) Which deal do you feel is superior the stadium rights or the uniform rights? Explain. - C) What are the main risks to Telemundo in this transaction? D) Telemundo has heard rumors that a competing RSN is also interested but has not yet begun its negotiations with the Diablos. The Diablos are unaware of the other RSN's intent now. What strategy would you suggest to Telemundo based on this information and what can Telemundo creatively counter offer the Diablos to conclude the negotiations successfully? WHAT DETERMINES THE VALUE OF CASH FLOWS? 1. size 2. timing 330K to 41 + $76,800 " 411,800 3. riskiness/ uncertainty $100 (1,5) = +110 |.| You believe that there is a demand for off-campus housing near an up-state SUNY school. You take $300,000 and you buy an old-house 2 blocks from campus and you fix it up for $30,000. You put in 8 students, charge each $800/month and they all sign 3 year leases. After 3 years you can sell the house for $335,000. Forget about taxes. If I don't go ahead with this, I put my money in a money. market mutual fund earning 3% interest. r=5%+4%=9% TB TC....0 (76,800 + 76,800 + 411,800) - $330,000 >, < 0 (1.09) (1.09) 1.0933 $70,458 + 64,641 + 317,985)-330,000 = $123,084 >0 1+2+3+4+5+...+100 100 W {i 4 S 5/55 500 / + 4/14 3 T = zi (2.1) (2.2) (2.3) -3.6M to 10 $7M (1.06) 31 (47m) (106) (1.125) NPV = (1.125) i i=1 +. =48 tlo .+ (TM) (1.06) (1.125) 10 The San Antonio Diablos have reached out to Telemundo, a large Hispanic content cable firm with two offers for corporate sponsorships. The first is a naming deal for their stadium. Telemundo must pay $5.5m for the rights to have their name, logo, and tagline displayed prominently at 24 designated locations in and around the stadium for five years, after which the sponsorship will be renegotiated. The sponsorship is expected to raise Telemundo's revenues by about $1.25m per year. A second possibility would be for Telemundo's name and logo to be added to the team's uniforms for three years for $2.2m, which is expected to bring in an extra $900,00/year in additional revenues. Assume that Telemundo's discount rate is 12.5% for both sponsorships. A) Calculate the net economic benefits of these two offers and present them to Telemundo management. B) Which deal do you feel is superior the stadium rights or the uniform rights? Explain. - C) What are the main risks to Telemundo in this transaction? D) Telemundo has heard rumors that a competing RSN is also interested but has not yet begun its negotiations with the Diablos. The Diablos are unaware of the other RSN's intent now. What strategy would you suggest to Telemundo based on this information and what can Telemundo creatively counter offer the Diablos to conclude the negotiations successfully?