Questions and Answers of Financial Management

You have been asked to consult for an entrepreneur who is assembling investors for a new professional sport league. A critical decision for the league will be whether to organize under a
Does higher expected inflation increase, decrease, or have no effect on the required rate of return?
What methods can a company use to raise capital?
Does a company share its risk by issuing equity or debt?
What are some of the advantages of equity financing?
What are some of the disadvantages of equity financing, specifically for sport teams?
Is the yield curve typically upward or downward sloping? Why?
How are the features of a convertible bond similar to both debt and equity?
Using the information in Exhibit 7.4 for NewFangled Sports Products, Inc., calculate the new NPV of a share of stock if the perpetual growth rate doubled from 4% to 8%. Additionally, if the terminal
A share of New Fangled Sports stock is expected to provide a $$1$ per year dividend payment the first year and to grow at 8% thereafter. With a discount rate of 12% and a 15-year horizon, what is
A minor league professional hockey team embarks on an aggressive facility expansion that requires additional capital. Management decides to finance the expansion by borrowing $$40$ million and by
Owners of sport franchises face tough decisions related to capital structure when they decide a new facility is needed. The St. Louis Cardinals were faced with these decisions when they decided to
What major information (data) do you need for capital budgeting when you want to compare projects?
What relevant information is provided in each capital budgeting method?
What is the problem with multiple IRRs, and when in sport would they occur?
What is the purpose of the post-audit in the capital budgeting process?
Project M has a cost of $$65,125,$ expected net cash inflows of $$13,000$ per year for ten years, and a cost of capital of 11%. What is the project’s payback period (to the closest year)?
What is the project’s NPV?
Based on the answers to questions 1–5, should the project be accepted? Why or why not?
Currently, the residents of the Athens Arts, Parks, and Recreation District suffer from a significant deficiency in swimming opportunities. The Arts, Parks, and Recreation District serves a community
How can a stadium or arena be built without putting too much financial burden on a local government?
How does location affect the costs of a stadium or arena project? What are the pros and cons of locating a stadium downtown versus out near a highway?
When the construction ends up costing more than initial projections, should the local government be responsible for paying the additional costs?
Of the following list of public financing sources, which ones satisfy the principles of horizontal equity, vertical equity, the benefit principle, and efficiency? general obligation bonds revenue
Calculate the savings in total construction costs from issuing a $$100$ million GOB paying out at 5% rather than a revenue bond paying out at 7%, both with a 25-year maturity.
Develop a public financing plan for a new NBA arena in the city of Sacramento. The arena will have a total cost of $350 million, and the public will finance 60% of the construction cost. Both the
In Exhibit 10.5, which shows 2001 valuations, why did the Montreal Expos have the highest price-to revenue multiple under Selig’s valuation?EXHIBIT 10.5 2001 financial information for MLB and its
Give examples of ways in which the majority owner of a sport team could violate fiduciary duties and financially harm the minority shareholders.
In a discounted cash flow analysis, what happens to the NPV if, all else being equal, the discount rate goes up? What happens to the NPV if the growth rate for the terminal value (perpetual growth
Give examples of how a sport franchise can use related-party transactions to reduce its net income. For each example, how does it reduce net income?
When an analyst determines the value of a private company owned 100% by a single investor by analyzing the share prices of publicly traded companies, what adjustments must he or she make in order to
If the minority price for a single share of stock of a company is $$20,$ there are 500,000 shares of stock, and a person offers to buy the entire company for $$14.5$ million, what is the
The Silna family had a contract to receive 1/7th of the television revenue of four NBA teams (Denver Nuggets, San Antonio Spurs, Brooklyn Nets, and Indiana Pacers) in perpetuity. The NBA’s
What factor or variable is the most important in forecasting market demand for a new MLB stadium? Provide evidence for your answer.
What factor or variable is the most important in forecasting market demand for a new minor league baseball stadium? Provide evidence for your answer.
Is a comparables analysis a type of secondary research or primary research? Explain your answer.
Suppose a community is considering constructing a large pool facility for use by community residents. How might it go about conducting a feasibility study for the pool?a. Describe possible methods
Why do analysts sometimes use retail spending as a factor in measuring market demand for a sport facility? What are the pros and cons of using it?
As discussed in this chapter, a feasibility study for a sport stadium requires forecasting annual attendance and total revenues at the facility. Consider the following hypothetical situation: A small
Can a person be both a casual visitor and a time-switcher for the same event?
Under what conditions should spending by local residents be counted in a calculation of economic impact?
In measuring the economic impact of a sport team, is it correct to count both the spending by fans inside the stadium and the spending by the team (in running its operations) in the community?
All else being equal, does increasing the size of the geographic area of impact raise, lower, or have no effect on the capture rate?
How would one determine the extent to which locals are reverse time-switchers for a particular event?
What are some of the causes of overestimating the economic impact of a sport event? Of underestimating?
Review the following description of an economic impact study and answer the questions that follow. When you have finished, you will have measured the economic impact of a large sport event. You have
What factors will affect the type of bond that a city will choose to issue for construction of a new recreation facility?
What factors will affect the type of bond that a school district will choose to issue for construction of new athletic facilities?
What differences, if any, are there when selecting a bond to construct a community recreation facility versus a high school athletics facility?
In your hometown, how have local recreation facilities and high school athletic facilities been financed?
What are the main sources of revenue for your hometown’s recreation center?
What pricing paradox do the managers of public recreation centers face?
How should the manager of a public recreation center measure financial success?
Over the past 30 years, how has the funding of park and recreation agencies and high school athletic programs changed?
Explain the process of calculating the millage needed to fund a new recreation center or high school facility.
The debt service schedules for Fenton, Missouri, are found in Exhibits 13.6 and 13.7. In Exhibit 13.7 why does the rate of interest that the city pays increase over time? Why does the city make two
How does state tax law affect the financing of parks and recreation facilities and programs?
For the funding of projects, why are municipalities moving from the use of general obligation bonds to revenue bonds, PFA bonds, and certificates of participation?
How can an individual’s experiences working in professional sport finance benefit a park and recreation agency?
What problems might arise in the negotiation of a joint use agreement?
You are tasked with calculating the property tax needed to fund construction and operation of a $$22.5$ million complex. The facility’s annual operating budget is forecast at $$3.6$ million, to
Calculate the additional millage required to cover the project’s debt service.
For an owner of property with a total assessed value of $$15,000,$ by how much will his/her property tax increase?
Perhaps one of the most successful public/private partnerships between a municipality and a private entity is the USTA Billie Jean King National Tennis Center. The National Tennis Center, located in
The University of North Carolina and Duke University have two of the more developed athletic department endowment programs in the NCAA. The main endowed fund at North Carolina is the Scholarship
How does money flow from the NCAA to its member institutions?
What differences in structure lead to financial differences among NCAA member institutions?
What financial role does college football play at NCAA Division I-FBS institutions? How does this compare to Division I-FCS institutions?
Why are athletic departments’ development efforts so critical?
What problems may exist in the relationship between donations and ticketing for college athletic events?
As director of development for Southern Ohio State University (SOSU), you have been charged with developing a plan to endow 12 men’s basketball scholarships. The current cost of a scholarship
Develop a major gifts table for the capital campaign. Explain the method you used to construct the chart.
What is the difference between win maximization and profit maximization? How can these differing philosophies cause problems in professional sport leagues?
How does a commissioner interact with owners and players in a professional sport league? What are a commissioner's main responsibilities?
How do professional sport leagues such as the NBA, NHL, NFL, and MLB differ in structure from entities such as NASCAR, the PGA Tour, and the PBA Tour?
Why do professional leagues establish rules governing the financial operation of individual franchises?
Explain the concept of pooled debt instruments.
Why have so many rival professional sport leagues failed in the United States?
Explain the concept of competitive balance. How have leagues attempted to achieve competitive balance?
Discuss the differences among the salary caps in the NBA, NHL, NFL, and MLS.
Explain how the NBA's new luxury tax system operates. Research and explain an example where the new tax rates affected (or may have affected) a team's decision to sign players for its roster.
What is WAR (in the context of sport finance)? Conduct research to determine the ten most efficient players during the last MLB season. Then compare their salaries to determine which player offered
List and describe the most important revenue sources for professional sport leagues. In what ways do you think these revenue sources will change in importance in the future?
Do you feel that daily fantasy leagues are gambling or games of skill? How do you feel the legislative and judicial branches of government will resolve this question in the future?
Explain why a relegation system would be difficult to implement in North American professional sport leagues.
If the federal inheritance tax is set at 40% of all assets above $$5$ million at the time of death, and a state's inheritance tax is set at 5% of all assets above $$1$ million at the time of
If a 30-team league is contemplating expanding by two teams, how much money should it charge each new franchise to ensure that during the first year of the new 32-team league, each of the existing 30
Suppose that last season, the top pick in a 30-team league's amateur draft signed a contract for $$2$ million per year. In the upcoming season, the league will implement a salary slotting system
Exhibits 2.6 and 2.7 provide an income statement and balance sheet from Nike’s 2014 annual report. For the purposes of this problem and the case analysis that follows, use the data provided (May
Exhibits 2.6 and 2.7 provide an income statement and balance sheet from Nike’s 2014 annual report. For the purposes of this problem and the case analysis that follows, use the data provided (May
According to the National Sporting Goods Association (2013), sporting goods in the United States is a nearly $60 billion industry. Sports apparel and athletic footwear are two of the largest
How does risk affect the financial management of sport organizations?
Describe the process of determining a nominal interest rate.
Of MLB, the NBA, and the NHL, which league has the most risk, and which has the least? Why?
What must players and agents understand about risk? How should an agent structure a player’s contract if it contains deferred compensation?
What risk factors should a team consider when deciding whether to build and fund a new venue? How are the risk factors different if a municipality is funding the construction?
If you were advising an investor interested in purchasing a sport franchise, what advice would you give?
Among NCAA men’s basketball teams, which team would you expect to have the highest value? Why? How do you think conference affiliation affects value among these teams?
You have the opportunity to purchase NFL Franchise A. The probability distribution of expected returns for the franchise is as follows:What is the expected rate of return for an investment in
An owner of several sport assets holds the following portfolio:What is the beta of this portfolio? ASSET INVESTMENT BETA Team A $100,000,000 0.5 Team B $100,000,000 1.0 Facility A $100,000,000 1.5

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