Question

Suppose the initial construction cost for a baseball park is $900 mln. The useful economic life of the new ballpark is 20 years, and the appropriate discount rate is 10%. Assume that the expected operating profit is $150 mln a year. Suppose the ballpark's construction occurs in 2017 (no need to discount it), and it starts generating profit in 2018.

What is the Net Present Value of the ballpark? (in mln)

Round your answer to the second decimal place: X.XX (mln)

Answer: 377.03

Dont know how they got it. Need help.

Answer 1

Initial Investment = 900 million

Life = 20 years

Discount Rate = 10%

Annual Profit = 150 million

Net Present Worth = -900 million + 150 million (P/A, 10%, 20)

Net Present Worth = -900 million + 150 million (8.51356) = 377.03 million

NPW of ball park is 377.03 million.