Coolplay Corp. is thinking about opening a soccer camp in southern California.

To start the camp, Coolplay would need to purchase land and build four soccer fields and a

sleeping and dining facility to house 150 soccer players. 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 ages 1218. Property values

in southern California have enjoyed a steady increase in value. It is expected that after

using the facility for 20 years, Coolplay can sell the property for more than it was originally

purchased for. The following amounts have been estimated.

Cost of land $300,000

Cost to build soccer fields, dorm, and dining facility $600,000

Annual cash inflows assuming 150 players and 8 weeks $920,000

Annual cash outflows $840,000

Estimated useful life 20 years

Salvage value $1,500,000

Discount rate 8%

Instructions

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

(b) To gauge the sensitivity of the project to these estimates, assume that if only 125 players

attend each week, annual cash inflows will be $805,000 and annual cash outflows will

be $750,000. What is the net present value using these alternative estimates? Discuss

your findings.

(c) Assuming the original facts, what is the net present value if the project is actually

riskier than first assumed and a 10% discount rate is more appropriate?

(d) Assume that during the first 5 years, the annual net cash flows each year was only

$40,000. At the end of the fifth year, the company is running low on cash, so management decides to sell the property for $1,332,000. 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.