1. The athletic department is considering replacing the scoreboard at the football stadium. It will cost $2.4M to purchase and install the scoreboard. The scoreboard will have an expected useful life of 15 years and is depreciated using the straight line method. At T=15, the scoreboard will have a salvage value of $100,000, and the current scoreboard has a salvage value of $20,000. The new board is expected to generate an additional 5,000 fans per season at an average ticket price of $20. The athletic department will also be able to sell additional advertising totaling $200,000 per season. However, the electric cost for the new board will be $55,000, compared to current usage of $5,000. The university feels that alternate projects could return 8%. The university also pays no taxes.

2. The Mount Hood Ski Resort is looking to expand its facilities by adding a new ski lift. The initial investment would cost $2,500,000 and would increase annual expenses by $75,000. The new lift would have a useful life of 10 years and a salvage value of $25,000. The increase in skiing capacity would boost revenues by adding 5,000 skiers per year, paying an average of $100 for a lift ticket. Mt. Hood Ski Resort’s cost of capital is 6% and is in the 35% tax bracket. What is the net present value of the project?

Answer rating: 100% (QA)

answer Time line 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Cost of equipment 2400000 Salvage of old equi... View the full answer