The owners of Blossom de Trois-Rivières hockey club are considering a deal with an older, established club whereby they can acquire the services of Pierre Pharoah, a very high scorer and great gate attraction, in exchange for Kenneth Garcia (currently paid $17,550 annually). The established club would also receive $585,000 cash from Blossom. The owners' accountants have assembled the following data: Estimated useful life of Pharoah Estimated residual value of Pharoah Estimated useful life of Garcia Estimated residual value of Garcia Current cash offer for Garcia received from another club Applicable desired rate of return Other information: Year 1 2 3 4 5 Pharoah's Salary $70,200 81,900 93,600 93,600 84,240 Net present value The hockey club Additional Gate Receipts Because of Pharoah $ $386,100 351,000 234,000 117,000 46,800 5 years $23,400 5 years None $58,500 10% Click here to view the factor table. Based on your analysis of the data, calculate the net present value of Pharoah's services. (For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124. If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Additional Expenses of Handling Higher Volume $38,610 35,100 23,400 11,700 4,680 Recommend whether or not the club should acquire the services of Pierre Pharoah. acquire the services of Pharoah.
The owners of Blossom de Trois-Rivières hockey club are considering a deal with an older, established club whereby they can acquire the services of Pierre Pharoah, a very high scorer and great gate attraction, in exchange for Kenneth Garcia (currently paid $17,550 annually). The established club would also receive $585,000 cash from Blossom. The owners' accountants have assembled the following data: Estimated useful life of Pharoah Estimated residual value of Pharoah Estimated useful life of Garcia Estimated residual value of Garcia Current cash offer for Garcia received from another club Applicable desired rate of return Other information: Year 1 2 3 4 5 Pharoah's Salary $70,200 81,900 93,600 93,600 84,240 Net present value The hockey club Additional Gate Receipts Because of Pharoah $ $386,100 351,000 234,000 117,000 46,800 5 years $23,400 5 years None $58,500 10% Click here to view the factor table. Based on your analysis of the data, calculate the net present value of Pharoah's services. (For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124. If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Additional Expenses of Handling Higher Volume $38,610 35,100 23,400 11,700 4,680 Recommend whether or not the club should acquire the services of Pierre Pharoah. acquire the services of Pharoah.
Chapter9: Acquisitions Of Property
Section: Chapter Questions
Problem 42P
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7).
Transcribed Image Text:The owners of Blossom de Trois-Rivières hockey club are considering a deal with an older, established club whereby they can acquire
the services of Pierre Pharoah, a very high scorer and great gate attraction, in exchange for Kenneth Garcia (currently paid $17,550
annually). The established club would also receive $585,000 cash from Blossom. The owners' accountants have assembled the
following data:
Estimated useful life of Pharoah
Estimated residual value of Pharoah
Estimated useful life of Garcia
Estimated residual value of Garcia
Current cash offer for Garcia received from another club
Applicable desired rate of return
Other information:
Year
1
2
3
4
5
Pharoah's Salary
$70,200
81,900
93,600
93,600
84.240
Click here to view the factor table.
The hockey club
Additional Gate
Receipts Because of Pharoah
Net present value $
$386,100
351,000
234,000
117,000
46,800
5 years
$23,400
5 years
None
$58,500
10%
Additional Expenses of
Handling Higher Volume
$38,610
35,100
✓acquire the services of Pharoah.
23,400
Based on your analysis of the data, calculate the net present value of Pharoah's services. (For calculation purposes, use 5 decimal places as
displayed in the factor table provided, e.g. 1.25124. If the net present value is negative, use either a negative sign preceding the number e.g. -45
or parentheses e.g. (45).)
11,700
Recommend whether or not the club should acquire the services of Pierre Pharoah.
4,680
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