Lafluer Corp. is thinking about opening a soccer camp in southern California. In order to start the camp, the company would need to purchase land, and build four soccer fields and a dormitory-type sleeping and dining facility to house 150 soccer play- ers. 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 age 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, Lafluer can sell the property for more than it was originally purchased for. The following amounts have been estimated.

Instructions

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

(b) To gauge the sensitivity of the project to these estimates, assume that il on k 130 campers attend each week, revenues will be \($800,000\) and expenses will be v 780,000.
What is the net present value using these alternative estimates? Discuss your findings.

(c) Assuming the original lads, what is the net present value if the project is actually riskier than first assumed, and a 11% discount rate is more appropriate?

(d) Assume that during the first 5 years the annual net cash How's each yeai were only \($25,200\). At the end of the fifth year the company is running low on cash, so management decides lo sell the property for $1,250,000. 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

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Cost of land Cost to build dorm and dining facility Annual cash inflows assuming 150 players and 8 weeks Annual cash outflows Estimated useful life Salvage value Discount rate $ 300,000 $ 500,000 $ 950,000 $ 860,000 20 years $1,500,000 8%