P24-5A Coolplay Corp. is thinking about opening a soccer camp in southern California. To start the camp, Coolplay 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, Coolplay can sell the property for more than it was originally purchased for. The following amounts have been estimated. Cost of land Cost to build soccer fields, dorm and dining facility Annual cash inflows assuming 150 players and 8 weeks Annual cash outflows Estimated useful life Salvage value Discount rate $300,000 $600,000 $920,000 $840,000 20 years $1,500,000
P24-5A Coolplay Corp. is thinking about opening a soccer camp in southern California. To start the camp, Coolplay 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, Coolplay can sell the property for more than it was originally purchased for. The following amounts have been estimated. Cost of land Cost to build soccer fields, dorm and dining facility Annual cash inflows assuming 150 players and 8 weeks Annual cash outflows Estimated useful life Salvage value Discount rate $300,000 $600,000 $920,000 $840,000 20 years $1,500,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
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Transcribed Image Text:P24-5A Coolplay Corp. is thinking about opening a soccer camp in southern California.
To start the camp, Coolplay 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, Coolplay can sell the property for more than it was originally
purchased for. The following amounts have been estimated.
Cost of land
Cost to build soccer fields, dorm and dining facility
Annual cash inflows assuming 150 players and 8 weeks
Annual cash outflows
$300,000
$600,000
$920,000
$840,000
20 years
$1,500,000
8%
Estimated useful life
Salvage value
Discount rate
Transcribed Image Text:ropriate:
(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 manage-
ment decides to sell the property for $1,332,000. What was the actual internal rate of
return on the project? Explain how this return was possible given that the camp did
not appear to be successful.
(d
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