Shilling Corp. is thinking about opening a baseball camp in Florida. In order to start the camp, the company

would need to purchase land, build five baseball fields, and a dormitory-type sleeping and dining facility

to house 100 players. Each year the camp would be run for 10 sessions of 1 week each. The company

would hire college baseball players as coaches. The camp attendees would be baseball players age 12-18.

Property values in Florida have enjoyed a steady increase in value. It is expected that after using the facility

for 20 years, Shilling can sell the property for more than it was originally purchased for. The following

amounts have been estimated:

Cost of land $ 630,000

Cost to build dorm and dining facility 2,100,000

Annual cash inflows assuming 100 players and 10 weeks 2,520,000

Annual cash outflows 2,260,000

Estimated useful life 20 years

Salvage value 4,400,000

Discount rate 10%

Present value of an annuity of 1 8.514

Present value of 1 .149

Instructions

(a) Calculate the net present value of the project. (5 marks)

(b) To gauge the sensitivity of the project to these estimates, assume that if only 80 campers attend

each week, revenues will be $2,085,000 and expenses will be $1,865,000. What is the net present

value using these alternative estimates? Discuss your findings. (5 marks)

(c) Assuming the original facts, what is the net present value if the project is actually riskier than first

assumed, and a 12% discount rate is more appropriate? The present value of 1 at 12% is .104 and

the present value of an annuity of 1 is 7.469. (5 marks)