Year	Cashflow
0	($72,000,000)
1	$9,000,000
2	$10,350,000
3	$11,385,000
4	$12,524,000
5	$13,776,000
6	$14,465,000
7	$15,188,000
8	$15,947,000
9	$16,745,000
10	$17,582,000

The tax rate for the facility is 25%.

Financing Options

Option 1 - Option 1 utilizes 100% debt. The JSL group would take out a private loan in the amount of $35 million at 6% interest. The city would back the remaining $37 million by issuing bonds at 3.75% interest and yield of 4.2%. This would be partially backed with general obligation bonds from San Marcos residents (which still require voter approval), and partially with revenue from the facility itself. A city can issue a general obligation bond through the bond market. Typically, a general city-issued general obligation bond is supported by an increase in citizens property taxes. This is why issuing a general obligation bond requires voter approval. Also, because the bond is backed by property taxes, the city is often able to receive favorable interest rates for the on the bond. This is one benefit JSL has in partnering with the city of San Marcos (for more on the municipal bond process, see Howard & Crompton, 2004).

Option 2 - Option 2 utilizes 60% city-backed debt at 4.25% interest. This would be paid back through a visitor tax increase on hotels and rental cars, as well as revenue from the facility itself. This tax increase does not require voter approval. The remaining 40% would be offered to preferred limited stockholders. This preferred stock would be offered at $45/share. The cost to issue the preferred stock is 10.4%

Option 3 - Option 3 utilizes a mix of private loans and limited private stock ownership of the facility. In this option, JSL owns 25% of the facility through a limited private stock offering to its internal partners. This would be offered at $43/share. The cost of equity would be 11.1%. Then, JSL finances an additional 30% through private bank loans (so that its total controlling share is 55%). These loans, totaling $21,600,000, are issued at 6%. The final 45% of the facility will be financed through the issuance of a revenue bond backed by an additional 3 cent tax on cigarettes sold in the city limit. The yield on the bond is 5.8%

Your Task:

After this initial examination of the data, the task force has hired you as a consultant to help them make their final analysis and recommendations on the project. Your task is to use the information provided to calculate the WACC of the three project options, and then compute the returns (using NPV and IRR) of the three options. The interest factor is 7%. In short, create a full analysis of the cash flows and the returns.