Question
Agroup of Quebecois businesspeople plans to build a Montreal based National Basketball Association (NBA) team. They can use the existing Laval Crusaders 8-thousand-seats arena for
Agroup of Quebecois businesspeople plans to build a Montreal based National Basketball Association (NBA) team. They can use the existing Laval Crusaders 8-thousand-seats arena for free (since one of theQuebecois businesspeople owns it) or rent the Bell Center.
The team is expected to start playing in the NBA next year, for which the group has the following information: If they choose the Laval Crusaders arena,attendance is expected to be 80% of the stadium capacity and an average ticket price of $76 with 41 home games per season.If they choose the Bell Center, they will have to pay rent exactly compensating the Molson family (owners of the Bell Center) for lost revenue from cancelling of 20events (hockey games, Celine Dion concerts, etc.) per year due to scheduling conflicts with basketball games.The capacity of the Bell Center is 21 300 seats, the group estimates the average ticket price of the cancelled events at $100, and average attendance of the conflicting events at 80%. The group estimates attendance for the 41 home games in the Bell Center at 80%, keeping the ticket price for the basketabll games the same as in Laval, at $76.
The group expects ticket revenues to grow 3% per year ever after. The WACC for the project is estimated at 7.3%.Broadcasting revenues merchandising and sponsorship, player expenses, administration, maintenance and other overheads are independent of the choice of the venue and expected to grow at the same pace as ticket revenues.The group counts on getting a tax waiver for life given the public importance of the project. Changes in net working capital can be neglected.
What is the incremental present value of choosing the Bell Center over the Laval Crusaders arena as the venue for the future Montreal NBA team? Please, input your answer in $ million (e.g. $55,555,678.36 as 55.5557)
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