The owners of Les Tigres de Trois-Rivières hockey club are considering a deal with an older, established club whereby they can acquire the services of Pierre Luc, a very high scorer and great gate attraction, in exchange for Robert McCain (currently paid $15,000 annually). The established club would also receive $500,000 cash from Les Tigres. The owners' accountants have assembled the following data:

Estimated useful life of Luc...................................................5 years

Estimated residual value of Luc.............................................$20,000

Estimated useful life of McCain.............................................5 years

Estimated residual value of McCain..........................................None

Current cash offer for McCain received from another club.............$50,000

Applicable desired rate of return................................................10%

Other information:

Instructions
Based on your analysis of the data, recommend whether or not the club should acquire the services of Pierre Luc.

Transcribed Image Text:

Additional Gate Receipts Because of Luc 330,000 300,000 200,000 100,000 40,000 Additional Expenses of Handling Higher Volume $33,000 30,000 20,000 10,000 4,000 Year Luc's Salar $60,000 70,000 80,000 80,000 72,000 4