Question

The best team in the NFL (the New Orleans Saints) is thinking of creating a new luxury section and intends to sell season tickets for this new section. The cost of creating this new section is of $450,000 today. The annual revenue from this section is expected to be $72,000 per year for the next 10 years. The organization estimates that the O&M costs associated with this section will be $4,500 per year but will increase by $750 after the first year. At the end of the 10 years, the organization expects to sell of the components of the luxury section (furniture, fridges, etc.) for $35,000. What is the rate of this return of this project? If the MARR is 5%, should the Saints execute this project? Select one: O a. IRR = 8.97%; Do not execute the project. ob. IRR = 4.63%; Execute the project. O c. IRR = 6.59%; Execute the project. O d. IRR = 8.11%; Do not execute the project. Oe. IRR = 5.98%; Do not execute the project. Of. IRR = 9.71%; Execute the project. Og. IRR = 7.98%; Execute the project

Answer 1

The right answer is g. Pls see table below.

Year	Investment	Operating Cost	Revenue	Salvage Value	Total Cash Flow
0	-450000				-450000
1		-4500	72000		67500
2		-5250	72000		66750
3		-6000	72000		66000
4		-6750	72000		65250
5		-7500	72000		64500
6		-8250	72000		63750
7		-9000	72000		63000
8		-9750	72000		62250
9		-10500	72000		61500
10		-11250	72000	35000	95750
					7.98%