Capital Investment in a Baseball Player William Voock, president of the Chicago Chartreuse Sox, is currently considering a player deal in which he will acquire Bill Blue, a great gate attraction, from the New York Confederates in exchange for $500,000 cash plus George Bumble, a regular Sox outfielder who is currently receiving a salary of $15,000 a year. Blue is to be Bumble’s replacement in the regular outfield. Voock and his fellow executives have assembled the following data:

Estimated useful life of Blue 5 years Estimated residual value of Blue $20,000 Estimated useful life of Bumble 5 years Estimated residual value of Bumble None Current cash offer for Bumble received from the Atlanta Carpetbaggers Baseball Club $50,000 Applicable minimum desired rate of return 10%

Other data:

ADDITIONAL CLUB ADDITIONAL EXPENSES BLUE’S GATE RECEIPTS OF HANDLING YEAR SALARY BECAUSE OF BLUE HIGHER VOLUME 1 $60,000 $330,000 $33,000 2 70,000 300,000 30,000 3 80,000 200,000 20,000 4 80,000 100,000 10,000 5 72,000 40,000 4,000 (Ignore income taxes.)
1. Based on the data as given, should the Sox buy Blue? Use the following present value factors for $1 at 10 percent:
FOR END OF YEAR 1 2 3 4 5 Factor 2) 83 ihe) .68 .62 2. What other factors should be considered before making the decision? How much confidence do you have in the available data?  L01