The professional football club, Hersey Academicals, is considering acquiring a highly

successful German International footballer. The transfer fee will be $42 million, half of

which is payable immediately and the other half payable in one year.

The annual salary of the player during his 4-year contract will be $6.5 million. The clubs

sponsor has agreed to increase the sponsorship fee by $12 million per year during the

contract, the first sum will be paid upon signing the contract with the footballer. Additional

annual income from gate money is expected to be $6 million in year 1 and increase by 10%

each year.

Assume all transactions are in cash and arise at the end of the year concerned except where

indicated above. The companys cost of capital is 12%.

You are the business manager of Hersey Academicals. Prepare an analysis to the CEO of

Hersey Academicals, advising him whether to acquire this German International footballer.

Your analysis should include the followings:

a) Net Present Value (NPV) analysis. (16 marks)

b) Payback period analysis (using the nominal cash flow). (2 marks)

c) Suggest two other factors of consideration. (4 marks)

d) Would you recommend acquiring the footballer? Briefly explain. (3 marks)