The city of Toledo has received a proposal to build a new multipurpose outdoor sports stadium. The expected life of the stadium is 20 years. It will be financed by a 20-year bond paying 8 percent interest annually. The stadiums primary tenant will be the citys Triple-A baseball team, the Red Hots. The plans backers anticipate that the site also will be used for rock concerts and college and high school sports. The city does not pay any taxes. The citys cost of capital is 8 percent.

Should the city build the stadium? (Assume payments are made at the end of the year.)

The Red Hots have threatened to move out of Toledo if they do not get a new stadium. The city comptroller estimates that the move will cost the city $350,000 per year for 10 years in lost taxes, parking, and other fees. Should the stadium build the stadium given those circumstances?

Toledo Stadium
Annual Cash Flows/Net Present Value
Cash Outflows:
Maintenance		-250,000
Cash Inflows:
Lease Payments		650,000
Concerts		600,000
Other Sports Eevents		50,000
Annual Net Cash Flows		1,050,000
*Annuity Factor		9.818
Less: Original Outlay (annual net cash flow8annuity)			10308900
Net Present Value			12,000,000
			-1,691,100