**Price: $2.50**

Goldbloom Corp. is thinking about opening a soccer camp in southern California.

To start the camp, Goldbloom would need to purchase land and build four soccer fields

and a sleeping and dining facility to house 150 soccer players. Each year, the camp would

be run for 8 sessions of 1 week each. The company would hire college soccer players as

coaches. The camp attendees would be male and female soccer players ages 12–18. Property

values in southern California have enjoyed a steady increase in value. It is expected that

after using the facility for 20 years, Goldbloom can sell the property for more than it was

originally purchased for. The following amounts have been estimated.

Cost of land | $300,000 |

Cost to build soccer fields, dorm and dining facility | $600,000 |

Annual cash inflows assuming 150 players and 8 weeks | $940,000 |

Annual cash outflows | $840,000 |

Estimated useful life | 20 years |

Salvage value | $1,500,000 |

Discount rate | 8% |

Instructions

(a) Calculate the net present value of the project.

(b) To gauge the sensitivity of the project to these estimates, assume that if only 125 players

attend each week, annual cash inflows will be $800,000 and annual cash outflows

will be $750,000. What is the net present value using these alternative estimates?

(c) Assuming the original facts, what is the net present value if the project is actually

riskier than first assumed and an 11% discount rate is more appropriate?

(d) Assume that during the first 5 years, the annual net cash flows each year were only

$40,000. At the end of the fifth year, the company is running low on cash, so management

decides to sell the property for $1,332,000. What was the actual internal rate of

return on the project?

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