Question

Pedesane FC, a soccer club located in Pedesane city, has been recently promoted from the second division to the first division of the Calcio Serie League (CSL). This promotion has been especially exciting news in the community and the club general manager, Ms. Silvana Pravo, is planning to build a set of new seating for the club’s soccer stadium, as the club expects higher number of spectators to attend the home games.  The total costs are estimated to be $2 million, and financing will be through a non-callable annual bond issue of the same amount.  The bond will have a maturity of 20 years with a coupon rate of 10 percent.  In addition, the club must set up a reserve to pay off the loan by making 20 equal annual payments into an account, which pays 10 percent, annual compounding interest.  The interest-accumulated amount in the reserve will be used to retire the entire issue at its maturity 20 years later.  The club plans to meet the payment requirements by selling season tickets at a $14.75 net profit per ticket. Ms. Pravo wants to know how many tickets must be sold each year to service the debt, i.e., to meet the interest and principal repayment requirements. (Required: please explain your approach in three lines).

Answer 1

Answer How many tickets must be sold each year to service the dept? Given that: * Total estimated cost - $ 2000,000 * financing through a non-Callable annual bond issue of the same amount. i.e. $2,000,000 Number of equal annual payment = 10% Rate of Interest Now find equal annual payment : (1+i)"-1 - A n where A = Equal Annual payment 10 % (0.10) 20 2,000,000 2,000,000 = A (1+ 0.10) 20 1170.1012° x 0.10 2,000,000 8. 51356372 Equal annual payment - 234 919. 25

Now we have to find number of tickets sold. 234,919.25 14.95 15,926.73 15, 924 Tickets . Number of tickets sold each year to Service the debt Tickets = 15,927