What is the net present value of the stadium project, which is a 3-year project where Fairfax Pizza would sell pizza in the baseball stadium? The project would involve an initial investment in equipment of 70,000 dollars today. To finance the project, Fairfax Pizza would borrow 70,000 dollars. The firm would receive 70,000 dollars from the bank today and would pay the bank 93,800 dollars in 3 years (consisting of an interest payment of 23,800 dollars and a principal payment of 70,000 dollars). Cash flows from capital spending would be 0 dollars in year 1, 0 dollars in year 2, and 28,000 dollars in year 3. Operating cash flows are expected to be 46,200 dollars in year 1, 36,400 dollars in year 2, and -16,800 dollars in year 3. The cash flow effects from the change in net working capital are expected to be -17,000 dollars at time 0; 12,000 dollars in year 1; -10,000 dollars in year 2; and 15,000 dollars in year 3. The tax rate is 25 percent. The cost of capital is 6.25 percent and the interest rate on the loan would be 10.25 percent.

Answer rating: 100% (QA)

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