Preliminary plans are underway for construction of a new stadium for a major league baseball team. City officials question the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individuals may purchase a box for $250,000. The fixed construction cost for the upper-deck area is estimated to be $5,400,000, with a variable cost of $100,000 for each box constructed. What is the breakeven point for the number of luxury boxes in the new stadium? Preliminary drawings for the stadium show that space is available for the construction of up to 60 luxury boxes. Promoters indicate that buyers are available and that all 60 could be sold if constructed. What is your recommendation concerning the construction of luxury boxes? What profit is anticipated? How will the break-even point change if the fixed cost increases by 15%, variable cost by 10% and selling price increases by 12.5%? ANSWER USING EXCEL

Preliminary plans are underway for construction of a new stadium for a major league baseball team. City officials question the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individuals may purchase a box for $250,000. The fixed construction cost for the upper-deck area is estimated to be $5,400,000, with a variable cost of $100,000 for each box constructed. What is the breakeven point for the number of luxury boxes in the new stadium? Preliminary drawings for the stadium show that space is available for the construction of up to 60 luxury boxes. Promoters indicate that buyers are available and that all 60 could be sold if constructed. What is your recommendation concerning the construction of luxury boxes? What profit is anticipated? How will the break-even point change if the fixed cost increases by 15%, variable cost by 10% and selling price increases by 12.5%? ANSWER USING EXCEL

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

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The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for the runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000, and the additional annual maintenance costs for the extension are estimated to be $22,500. If the runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance costs for the terminal are estimated at $75,000. Finally, the projected increase in flights will require the addition of two air traffic controllers at an annual cost of $100,000. Annual benefits of the runway extension have been estimated as follows (shown): Apply the B–C ratio method with a study period of 20 years and a MARR of 10% per year to determine whether the runways at Columbia Municipal Airport should be extended.
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