Question
You are the manager of a sports team and want to know if hiring a super star player makes economic sense. One of your concerns
You are the manager of a sports team and want to know if hiring a super star player makes economic sense. One of your concerns is that the longer the player stays in your team, the more probable is that he gets an injury or loses its popularity, so you will only hire him if you recover your investment in 3 years or less. You will sign a 5 year contract with him, after which he will retire. With the following information obtain the Net Cash Flow, calculate the Net Present Value and the Discounted Payback Period. Use a MARR of 15% per year.
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Transfer fee to its current team: $80,000,000
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Signing bonus to the player: $2,000,000
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Players salary: $8,000,000 per year
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Increase in annual revenues from TV rights: $20,000,000
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Profits for each T-Shirt with his name: $100
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Expected sales of T-Shirts with his name: 10,000 per month
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Increase in monthly revenues from sponsors: $600,000
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Increase in the attendance to each local match: 10,000 people per match
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Local matches per year: 20
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Average local matches ticket price: $24
Should you hire the player?
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