A city is considering building a new multi-purpose sports and entertainment comp

Question

A city is considering building a new multi-purpose sports and entertainment complex. The city would spend $325 million immediately to construct the complex. Annual revenue from this complex would be $41 million and annual operations and maintenance costs would be $10 million. The city's MARR is 11.6% compounded annually. Assume the annual revenue and costs will remain the same under these conditions for an infinite amount of time. What is the present worth of the entertainment complex? Enter your answer in millions of dollars. A city is considering building a new multi-purpose sports and entertainment complex. The city would spend $325 million immediately to construct the complex. Annual revenue from this complex would be $41 million and annual operations and maintenance costs would be $10 million. The city's MARR is 11.6% compounded annually. Assume the annual revenue and costs will remain the same under these conditions for an infinite amount of time. What is the present worth of the entertainment complex? Enter your answer in millions of dollars. A city is considering building a new multi-purpose sports and entertainment complex. The city would spend $325 million immediately to construct the complex. Annual revenue from this complex would be $41 million and annual operations and maintenance costs would be $10 million. The city's MARR is 11.6% compounded annually. Assume the annual revenue and costs will remain the same under these conditions for an infinite amount of time. What is the present worth of the entertainment complex? Enter your answer in millions of dollars.

Explanation / Answer

Present capital cost = $325 mn

Each year the cash flow = $41 mn - $10 mn = $31 mn.

Below formula for calculating the present value of a perpetuity is:

K
A = —-
r

Where:

K = annual cash flow

r= MARR compounded annually (discounting rate)

Present value of annual cash = 31/0.116 = $267.24 mn

But, present cost = $325 mn

Hence present worth = Present value of annual cash flows - Present cost = 267.24 - 325 = $ -57.76 mn

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