2. You work for a professional sport franchise that is considering purchasing a new digital scoreboard or renovating signage area on the outside of the stadium. The franchise can take out one loan at 7% interest that it can use for either investment but not both investments. Use the following information to decide whether or not to buy the scoreboard.

Remember to enter your final answers in this Word document and to upload an Excel spreadsheet to demonstrate the working of your final answers. Be sure to use headings within the spreadsheet to present your work with clarity

Scoreboard

The scoreboard will cost $100,000. You can trade in the old scoreboard for a $5,000 discount. Small changes to the stadium are required to install the new board, totaling $20,000. The installation will cost $3,000.

The scoreboard will have a useful life of 10 years and has no salvage value. Straight-line depreciation can be applied to the asset. The companys tax rate is 21%.

The franchise expects to sell an extra $20,000 worth of sponsorships a year with the new scoreboard. Increases in fan satisfaction are also expected to increase ticket revenue by $10,000 a year. The scoreboard will also increase maintenance and utility costs by $2,000 a year.

a-What is the initial cost of the scoreboard?

b-What is the incremental cash flow of the scoreboard for the first year (including the tax benefits)?

c-What is the projects payback period?

d-What is the projects discounted payback period?

e-What is the projects NPV?

f-What is the projects IRR?

Signage area

The signage area renovation will cost $100,000.

The renovations can be depreciated using straight-line depreciation over 39 years and the signage area has no salvage value. The companys tax rate is 21%.

The franchise expects to sell an extra $22,000 worth of sponsorships a year with the renovated signage area for the remaining 39 years of life of the stadium.

g-What is the initial cost of the signage area renovation?

h-What is the incremental cash flow of the signage area renovation for the first year (including the tax benefits)?

i-What is the projects payback period?

j-What is the projects discounted payback period?

k-What is the projects NPV?

l-What is the projects IRR?

m- Which project should the franchise invest in? Explain your answer in detail, including (1) an explanation of which method they should use to make the decision and (2) the advantages and disadvantages of the method as they apply to the scoreboard and signage area projects.

Remember to enter your final answers in this Word document and to upload an Excel spreadsheet to demonstrate the working of your final answers. Be sure to use headings within the spreadsheet to present your work with clarity.