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A regional city has a sports stadium, but it is aging and the city is considering a new sports stadium as a replacement. The life
A regional city has a sports stadium, but it is aging and the city is considering a new sports stadium as a replacement. The life of the new stadium would be 20 years, financed by a 20-year, 6 percent interest bond. The cost of capital for the city is the 6 percent. 6 percent / 20 years Future Value of an annuity 36.786 Present Value of an annuity 11.470 The initial outlay is $10 million to build the stadium. The direct cash receipts for leasing and renting the stadium is $700,000 per year for the 20 years. Annual maintenance cost for the stadium is $100,000. maintenance cost for the stadium is $ On the basis of the numbers so far, I do not believe that the stadium can be justified as a project with a positive net present value. However, there might be a loss on the local economy if the city allows the existing stadium to close with no replacement. The loss would be a decrease in taxes and parking fees. Required: 1. What is the net present value of the project? 2. How much would the present value of the estimated loss to the local economy need to be to make the project worth doing? 3. Most projects are creatures of regulation, at least in part. Maybe I should state "shaped by regulation" Laws and regulations set boundaries for what's acceptable and what's not. For example, I would imagine that the estimate of the loss to the economy is affected by the form of local regulations for noise, lighting, tax and business license rates, traffic flow, and others. Pick a law or regulation that would affect the estimate for loss for the local economy. Explain how that would increase or decrease the estimated impact on the loss
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