Bonita Corp. is thinking about opening a soccer camp in southern California

ACC 560 Week 8 Assignment

P12-5A Bonita Corp. is thinking about opening a soccer camp in southern California. To start the camp, Bonita would need to purchase land and build four soccer fields and a sleeping and dining facility to house 150 soccer players. Each year the camp would be run for 8 sessions of 1 week each. The company would hire college soccer players as coaches. The camp attendees would be male and female soccer players ages 12-18. Property values in southern California have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Bonita can sell the property for more than it was originally purchased for. The following amounts have been estimated.

Cost of land $300,000
Cost to build dorm and dining facility $600,000
Annual cash inflows assuming 150 players and 8 weeks $950,000
Annual cash outflows $840,000
Estimated useful life 20 years
Salvage value $1,500,000
Discount rate 8%

Instructions
a) Calculate the net present value of the project. Should the project be accepted?
b) To gauge the sensitivity of the project to these estimates, assume that if only 125 campers attend each week, annual cash inflows will be $800,000 and annual cash outflows will be $770,000. What is the net present value using these alternative estimates? Should the project be accepted?
c) Assuming the original facts, what is the net present value if the project is actually riskier than first assumed, and a 11% discount rate is more appropriate? Should the project be accepted?
d) Assume that during the first 5 years the annual net cash flows each year were only $45,000. At the end of the fifth year the company is running low on cash, so management decides to sell the property for $1,300,000. What was the actual internal rate of return on the project?


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Blazer Inc. is thinking of acquiring Laker Company

Blazer Inc. is thinking of acquiring Laker Company. Blazer expects Laker’s NOPAT to be $9 million the first year, with no net new investment in operating capital and no interest expense. For the second year, Laker is expected to have NOPAT of $25 million and interest expense of $5 million. Also, in the second year only, Laker will need $10 million of net new investment in operating capital. Laker's marginal tax rate is 40%. After the second year, the free cash flows and the tax shields from Laker to Blazer will both grow at a constant rate of 4%. Blazer has determined that Laker’s cost of equity is 17.5%, and Laker currently has no debt outstanding. Assume that all cash flows occur at the end of the year, Blazer must pay $45 million to acquire Laker. What it the NPV of the proposed acquisition? Note that you must first calculate the value to Blazer of Laker’s equity.


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