Question

3. [7pts) LSU is looking to expand its beach volleyball stadium to seat 1,000 (currently 450). The expansion will cost $100,000 and increase maintenance costs by $5,000 per year. The expansion is expected to have a life of 10 years and no salvage. To offset this, attendees will be charged $5 each per game. There are approximately 15 home competitions per year. What will the average attendance need to be per game for the expansion to break even over its lifetime? MARR=10%.

Answer 1

The present worth of the expansion

= 100,000 + 5,000(P/A,10%,10)

= 100,000 + 5,000 × 6.1445

= 100,000 + 30,722.84

= $ 130,722.84

Let the number of average attendee is Q per game.

Number of games every year = 15 games

Annual income every year = 5× 15 × Q(P/A,10%,10)

75Q × 6.1445 = 130,722.84

Q = 283.67

Quantity = 284 attendee

That is average revenue = $ 5 × 284 = $ 1,420

Average revenue = $ 1,420 × 15 = $ 21,300 per year