Problem 1 (8 points):

The Nashville Predators decided three summers ago to take on a $10 million dollar renovation to their Bridgestone Arena. With the success of the team and the general support from the Nashville fans, the upgrades were expected to improve the financial situation of the team in the long run. That is, the team felt that the arena renovation would ultimately lead to a positive return on their investment.

As a financial analyst, you have been asked by the Predators to examine their 2016numbers and conduct a sensitivity analysis, projecting out from 2017-2026. Once your analysis is complete, the team expects to receive a copy of your calculations, as well as a brief write up summarizing your findings as an excel document.

Here is the information you will need for your analysis:

2016 Average attendance: 16,500

2016 Average ticket prices: $56

2016 Average spending per fan per game: $25

Home games per year : 41

Optimistic projection: Attendance average will climb to 17,113 (arena capacity) for the next 10 years. Average ticket prices will increase by 2% each year, and per game average fan spending on concessions and merchandise will increase by 3% each year. On the expense side, per game costs will amount to $1,412,500 and increase by 0.25% each year. For discounting, use a rate of 5%.

Average projection: Attendance will average of 16,500 each year for the next 10 years, average ticket prices increase at 1% each year for next 10 years, and fan spendingon concessions and merchandise will increase by 1.5% each year. The discount during this time period is 6.5%, and expenses per home game are expected to be $1,341,465 and increase by 0.25% each year.

Pessimistic projection: The attendance will decline to an average of 15,000 per year, and ticket prices as well as fan spending are expected to remain the stagnant at the 2016 average. The discount during this time period is 7%. Additionally, the expenses per home game are expected to be $1,170,000 and increase by 0.25% each year.

Using the above information, (1) calculate the total yearly revenues for the team for the next ten years in each scenario. Next, after taking into account the per game expenses, (2) project the expected net cash flows for each scenario (total revenues total costs). Then, using these projected net cash flows, calculate the following for eachof the three scenarios:

Non-Adjusted payback period

Discounted payback period

Net Present value

Internal Rate of Return

Modified Internal Rate of Return