Question
You work for a professional sport franchise that is considering purchasing a new digital scoreboard or renovating signage area on the outside of the stadium.
- You work for a professional sport franchise that is considering purchasing a new digital scoreboard or renovating signage area on the outside of the stadium. The franchise can take out one loan at 7% interest that it can use for either investment but not both investments. Use the following information to decide whether or not to buy the scoreboard.
Scoreboard
The scoreboard will cost $100,000. You can trade in the old scoreboard for a $5,000 discount. Small changes to the stadium are required to install the new board, totalling $20,000. Installation will cost $3,000.
The scoreboard will have a useful life of 10 years. Straight-line depreciation can be applied to the asset. The company's tax rate is 21%.
The franchise expects to sell an extra $20,000 worth of sponsorships a year with the new scoreboard. Increases in fan satisfaction are also expected to increase ticket revenue by $10,000 a year. The scoreboard will also increase maintenance and utility costs by $2,000 a year.
Signage area
The signage area renovation will cost $100,000.
The renovations can be depreciated using straight-line depreciation over 39 years. The company's tax rate is 21%.
The franchise expects to sell an extra $10,000 worth of sponsorships a year with the renovated signage area for the remaining 39 years of life of the stadium.
M.) What should the franchise decide regarding these projects? Explain your answer in detail, including an explanation of which method they should use to make the decision and the advantages and disadvantages of the method. Please explain
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