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Suppose that Los Angeles wants to build a new arena to replace Staples Center. Assume that the cost of building a new arena in downtown
Suppose that Los Angeles wants to build a new arena to replace Staples Center. Assume that the cost of building a new arena in downtown Los Angeles is $2 billion and that all the costs occur right away. Also assume that Los Angeles will receive annual benefits of $30 million for the next 30 years, after which the new arena will become worthless. Does it make financial sense to build the new facility if interest rates are 5%?
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