Reflecting on Financial Decision: Investing in a New Scoreboard
a) What is the initial cost of the scoreboard?
a) $118,000
b) What is the incremental cash flow of the scoreboard for the first year (including the tax benefits)?
b) $25,480
c) What is the project’s payback period?
c) Approximately 4.63 years
d) What is the project’s discounted payback period?
e) What is the project’s NPV?
e) Cannot be calculated without the discount rate information
Let's calculate the relevant financial metrics for the scoreboard investment:
a) Initial Cost of the Scoreboard:
Scoreboard cost: $100,000
Trade-in discount: $5,000
Stadium changes: $20,000
Installation cost: $3,000
Initial cost of the scoreboard = Scoreboard cost - Trade-in discount + Stadium changes + Installation cost
Initial cost of the scoreboard = $100,000 - $5,000 + $20,000 + $3,000
Initial cost of the scoreboard = $118,000
b) Incremental Cash Flow for the First Year (including tax benefits):
Extra sponsorships: $20,000
Increased ticket revenue: $10,000
Increased costs (maintenance and utility): -$2,000
Tax rate: 21%
Incremental cash flow for the first year = $20,000 + $10,000 - $2,000 - ($10,000 * 0.21) - ($2,000 * 0.21)
Incremental cash flow for the first year = $25,480
c) Project's Payback Period:
Payback period = $118,000 / $25,480
Payback period = 4.63 years
d) Project's Discounted Payback Period:
Discounted payback period considers the time required to recover the initial investment, taking into account the time value of money. However, the discount rate is not provided in the information.
e) Project's NPV:
NPV (Net Present Value) measures the profitability of the investment, considering the time value of money. The discount rate is not provided in the information, so we cannot calculate the NPV without that information.