Question

To generate some extra cash you are debating buying some season tickets to various sports teams and then reselling them on StubHub. You already paid $25,000 for the rights to purchase tickets that is not refundable. If you buy tickets, you believe you can sell 400 tickets per year for $225 each. Each ticket will cost you $150. To sell the tickets, you need to set aside $10,000 today for ticket inventory as well as $5,000 for fixed investments. (Note: inventory is net working capital). You believe you will sell tickets for the next 5 years. If you fully recover the working capital at the end of the project (i.e. the net working capital in the last year is 0), depreciate all of your incremental fixed investments to zero using straight line depreciation, have a tax rate of 40%, and the project has a discount rate of 12%, should you start selling the tickets?

Answer 1

400 400 225 150 30000 Yr Sales Price Cost Contribution Depreciation Gross profit Tax @ 40% Net profit Add: depreciation Less: Rights to purchase tickets Less: Increase in working capital Less: fixed investments Net Cash Flow PVF @ 12% 400 225 150 30000 1000 29000 11600 17400 1000 225 150 30000 1000 29000 11600 17400 1000 1000 3 400 225 150 30000 1000 29000 11600 17400 1000 400 225 150 30000 1000 29000 11600 17400 1000 29000 11600 17400 1000 -10000 25000 10000 5000 -40000 1.000 18400 0.893 18400 0.797 18400 0.712 18400 0.636 28400 0.567 PV -40000.00 16428.57 14668.37 13096.76 11693.53 16114.92 NPV 32002.15 Since NPV is positive, we should start selling tickets