Question

Coolplay Corp is thinking about opening a soccer camp in southern California. To start the camp, Coolplay would need to purchase land and build four soccer fields and a sleeping and dining facility to house 150 soccer players. Each year, the camp would be run for 8 sessions of 1 week each. The company would hire college soccer players as coaches. The camp attendees would be male and female soccer players ages 12-18. Property values in southern California have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Coolplay can sell the for more than it was originally purchased for. The following amounts have been estimated. property Cost of land $324,000 Cost to build soccer fields, dorm and dining facility $648,000 Annual cash inflows assuming 150 players and 8 weeks $993,600 Annual cash outflows $907,200 Estimated useful life 20 years $1.620,000 8% Discount rate

Answer 1

1)	Computation of Net Present Value
Assuming 150 Players attend sessions
Year		Cashflow (A)	Discount Factor (Note 1)(B)	Discounted Cashflow (A X B)
0	Initial Investment	$    -9,72,000	1	$                 -9,72,000
	(Cost of land & build soccer fields)
1 to 20 Years	Net annual cash inflows	$         86,400	9.81815	$                  8,48,288
	($ 993,600 - $ 907,200)
20 th year	Salvage Value	$   16,20,000	0.21455	$                  3,47,568
			Net present value	$                  2,23,856
Assuming 125 Players attend sessions
Year		Cashflow (A)	Discount Factor (Note 1)(B)	Discounted Cashflow (A X B)
0	Initial Investment	$    -9,72,000	1	$                 -9,72,000
	(Cost of land & build soccer fields)
1 to 20 Years	Net annual cash inflows	$         59,400	9.81815	$                  5,83,198
	($ 869,400 - $ 810,000)
20 th year	Salvage Value	$   16,20,000	0.21455	$                  3,47,568
			Net present value	$                    -41,234

Note1
Year	Discount Factor @ 8%
	(1/1.08)^n
1	0.92593
2	0.85734
3	0.79383
4	0.73503
5	0.68058
6	0.63017
7	0.58349
8	0.54027
9	0.50025
10	0.46319
11	0.42888
12	0.39711
13	0.36770
14	0.34046
15	0.31524
16	0.29189
17	0.27027
18	0.25025
19	0.23171
20	0.21455
Total -	9.81815

2)	Sesitivity of Project
	% of change in Players		% of change in NPV
=	(150-125)/ 150*100		{($ 2,23,856 -(-41,234)}/ 2,23,856*100
=	16.67%		118%
	From the above calculation it is clear that project is highly sensitive as every 16.67 % change in no of players attended session there will be 118 % change in Net present value. Therefore project is highly risky. Project should not be accepted.