The second option is for the club is to improve its ground facilities. The west stand could be extended and executive boxes could be built for businesses wishing to offer corporate hospitality to clients. These improvements would also cost $10$m and would take one year to complete. During this period, the west stand would be closed, resulting in a reduction of gate receipts of $1\mathrm{.}8$m$.$ However the gate receipts for each of the following four years would be $4\mathrm{.}4$m higher than current receipts. In five years$$ time, the club has plans to sell the existing grounds and to move to a new stadium nearby. Improving the ground facilities is not expected to affect the ground$$s value when it comes to be sold. Payments for improvement will be made when the work has been completed at the end of the first year. whichever option is chosen, the board of directors has decided to take on additional ground staff.

The additional wages bill is expected to be $350,000$ a year over the next five years. The club has a cost of capital of $10\%.$ Ignore taxation.

REQUIRED:

$($a$)$ As a Financial Advisor, propose the appropriate option for the club.

HINT: The proposal should be made after computation of incremental cash flow arising from each option available to the Club and determination of Net Present Value of each option