You are an investment analyst for a small Dallas based investment company. The deal team has identified an interesting investment opportunity for your firm to purchase a golf course. You need to evaluate the opportunity and make a recommendation to management on whether to move forward in acquiring the golf course.

Key Assumptions and Base Case:

• The sale price for the golf course is $3.5 million
• The purchase price of the investment can be depreciated on straight line 25 year basis
• Revenue (and last year annual amounts) comes in three main categories:
  • Golf playing fees and memberships ($1.85 million)
  • Food and beverage services ($775,000)
  • Pro shop and apparel($435,000)
  • Hosted events ($3.15 million)
• You believe that with good management you can decrease the cost of service (COS) to 70% of revenue
• Selling, General and Administrative (SG&A) is $1.55 million per year
• The course needs new maintenance equipment in year 5 at the cost of $1.32 million. The maintenance equipment will depreciate on a 10 year straight line basis.
• The course needs a new sprinkler system in year 10 at the cost of $1.45 million. The sprinkler system will depreciate on a 10 year straight line basis.
• You believe that with good management you can increase revenue for each of the revenue categories at the following rates:
  • Golf playing fees and memberships (3% growth)
  • Food and beverage services (2.75% growth)
  • Pro shop and apparel(2.5% growth)
  • Hosted events (2.5% growth)
• You forecast SG&A expenses to increase each year by 3.5%
• Total sunk costs on the golf course project is $2,750,000
• The course was built 35 years ago at an initial cost of $2.1 million
• The golf course (land, equipment and improvements) has a salvage value of $1.5 million 25 years from now (in the event your company wanted to sell it).
• The corporate tax rate is 21%
• Incremental working capital is a non-issue and can be ignored
• The company evaluates projects using a 12.0% discount rate
• The project will have no corporate debt associated with it