The Hannibal Homers minor league baseball club is considering an expansion of its stadium to increase capacity by 2000 seats
Management estimates increased revenue from ticket and concession sales to be $600,000 per year for the next 5 years. The cost of expansion is $750,000, with an additional $50,000 in working capital. The working capital increase is permanent (will not be recovered after 5 years). Annual costs are expected to increase by $200,000 per year, the club's cost of capital is 14%, and its tax rate is 30%. If the stadium addition is depreciated in a straight line to a value of $0.00 over 5 years, what is the IRR of this project? (Ignore any revenues or costs associated with a terminal value of the project after five years.) Use a financial calculator to determine your answer.
A) 9.41%
B) 14.00%
C) 25.33%
D) 29.45%
Answer: D
Explanation: D) IRR sets NPV = $0; IRR via calculator or Excel
Net Cash Flow -$800,000 $325,000 $325,000 $325,000 $325,000 $325,000
IRR 29.45%
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Answer the following statement true (T) or false (F)
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Fill in the blank(s) with the appropriate word(s).
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What will be an ideal response?