Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

What is the net present value of the stadium project, which is a 3-year project where Fairfax Pizza would sell pizza in the baseball stadium?

What is the net present value of the stadium project, which is a 3-year project where Fairfax Pizza would sell pizza in the baseball stadium? The project would involve an initial investment in equipment of 110,000 dollars today. To finance the project, Fairfax Pizza would borrow 110,000 dollars. The firm would receive 110,000 dollars from the bank today and would pay the bank 149,600 dollars in 3 years (consisting of an interest payment of 39,600 dollars and a principal payment of 110,000 dollars). Cash flows from capital spending would be 0 dollars in year 1, 0 dollars in year 2, and 24,000 dollars in year 3. Operating cash flows are expected to be 50,600 dollars in year 1, 57,200 dollars in year 2, and -25,300 dollars in year 3. The cash flow effects from the change in net working capital are expected to be -18,000 dollars at time 0; 8,000 dollars in year 1; -2,000 dollars in year 2; and 12,000 dollars in year 3. The tax rate is 35 percent. The cost of capital is 6.19 percent and the interest rate on the loan would be 10.79 percent.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Expert Systems And Artificial Intelligence In Internal Auditing

Authors: Daniel E. O'Leary, Paul R. Watkins

1st Edition

1558760865, 978-1558760868

More Books

Students also viewed these Accounting questions

Question

Solve time value of money problems using uneven cash flows.

Answered: 1 week ago