City A is building a stadium for the franchise. They realize that the stadium will have the following construction costs: $50 mln in year 1, $20 mln in year 2. Then the stadium will start working in year 3, and will function for 5 more years, with $10 mln profits per year. The corporate tax rate is 6%, while the discount rate is 10%. The stadium depreciates over time (assume it depreciates using straight-line depreciation: $14 mln per year). Also assume that after the stadium stops functioning, its scrap value will be -$1 mln.

Suppose City As demand function for tickets to a home game is: P = 50 0.0005

a. What is the NPV of the stadium? (Hint: discount first year in this example)

b. Is it economically feasible?

c. Does the scrap value sign make sense? Give an example of when scrap value can be negative.