Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 04 Aug 2017 My Price 13.00

Lewis Corp.

P12-5B Lewis Corp. is thinking about opening a basketball camp in Texas. In order to start the camp, the company would need to purchase land and build eight basketball courts and a dormitory-type sleeping and dining facility to house 110 basketball players. Each year, the camp would be run for 8 sessions of 1 week each. The company would hire college basketball players as coaches. The camp attendees would be male and female basketball players ages 12 to 18. Property values in Texas have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Lewis can sell the property for more than it was originally purchased for. The amounts shown on the next page have been estimated.

 

 

 

 

 

 

 

 

 

Cost of land

$200,000

Cost to build dorm and dining facility

$350,000

Annual cash inflows assuming 110 players and 8 weeks

$700,000

Annual cash outflows

$570,000

Estimated useful life

20 years

Salvage value

$700,000

Discount rate

12%

 

 

 

 

 

 

 

 

 

Instructions

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

(b)  To gauge the sensitivity of the project to these estimates, assume that if only 90 campers attend each week, annual cash inflows will be $570,000 and annual cash outflows will be $508,000. What is the net present value using these alternative estimates? Discuss your findings.

(c)   Assuming the original facts, what is the net present value if the project is actually riskier than first assumed, and a 15% discount rate is more appropriate?

(d)  Assume that during the first 5 years the annual net cash inflows each year were only

$65,000. At the end of the fifth year, the company is running low on cash, so manage- ment decides to sell the property for $668,000. What was the actual internal rate of return on the project? Explain how this return was possible given that the camp did not appear to be successful.

 

 

 

PROBLEMS: SET C

 

Visit the book’s companion website, at www.wiley.com/college/weygandt, and choose the Student Companion site to access Problem Set C.

 

 

WATERWAYS CONTINUING PROBLEM

 

(This is a continuation of the Waterways Problem from Chapters 1–11.)

Answers

Maurice Tutor
(5)
Status NEW Posted 04 Aug 2017 10:08 PM My Price 13.00

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