PART 2 - Net Present Value (6 points For this part of the assignment, fill in the cells that are highlighted in yellow in the table below. Then, respond to the questions highlighted in yellow at the bottom of the page. The Milwaukee Brewers have to decide whether they want to spend $1.8 million to construct 10 new luxury suites. Fach suite will last for 10 years. At the end of 10 years, we will assume that the suites will need to be replaced and will have no salvage value. We will also assume that each luxury suite can be rented for $30,000 per year and that no other income will be made from the suites. The construction project will take one year. Therefore, the first income from the suites will be earned one year from today. If we think of one year from now as the end of year 1, income will flow into the Brewers' organization at the ends of years 1 through 10. The Brewers must calculate the Net Present Value (NPV) of this investment opportunity before making the decision. So starting at the end of year 1, it will have $300,000 in total income (530,000 per year for each of the 10 suites) for each of the next 10 years from the new suites. Overall, the project will generate $3 million in income, but the present value of the income stream must be calculated. Unlike previous examples in class in which one payoff was to be received x number of years in the future, here there is a stream of future payoffs. Thus, the present value of each future year must be calculated. Assume a rate of return of 8%. PV = Cx/(1+r) Present Value Year NPV - Total PV-RI of $300,000 1 $ NPV -net present value 2 $ Total PV = present value of future income 3 $ RI = required investment 4 $ 5 $ 6 $ 7 $ 8 $ 9 $ 10 $ Total PV $ What is the Net Present Value? Is it profitable for the Brewers to construct the new luxury suites? Why or why not? NPV