Compute internal rate of return and net present value to

Reference no: EM13453815

The Charlotte Bobcats, a professional basketball team, has been offered the opportunity to purchase the contract of an aging superstar basketball player from another team. The general manager of the Bobcats wants to analyze the offer as a capital budgeting problem. The Bobcats would have to pay the other team $800,000 to obtain the superstar. Being somewhat old, the basketball player is expected to be able to play for only four more years. The general manager figures that attendance, and hence revenues, would increase substantially if the Bobcats obtained the superstar. He estimates that incremental returns (additional ticket revenues less the superstar's salary) would be as follows over the four-year period:

YEAR

INCREMENTAL RETURNS

$450,000

350,000

275,000

200,000

The general manager has been told by the owners of the team that any capital expenditures must yield at least 12 percent after taxes. The firm's (marginal) income tax rate is 40 percent. Furthermore, a check of the tax regulations indicates that the team can depreciate the $800,000 initial expenditure over the four-year period.

a) Calculate the internal rate of return and the net present value to determine the desirability of this investment.

b) Should the Bobcats sign the superstar?

Reference no: EM13453815

Questions Cloud

The state of glottamora has 100 million remaining in its : the state of glottamora has 100 million remaining in its budget for the current year. one alternative is to give

Boston galleries uses the specific identification : boston galleries uses the specific identification method for inventory valuation. inventory information for several oil

What type of sociologist stresses a commitment to : question 1.what are the five key social institutions that impact society?economy government religion education and

What is one of the primary factors informing a childs : question 1.which country was the first to legalize gay marriage?the united statessouth africa canada the

Compute internal rate of return and net present value to : the charlotte bobcats a professional basketball team has been offered the opportunity to purchase the contract of an

Explain the structure of the crus of the penis what is its : q1. describe the structure of the crus of the penis. what is its function? q2. describe the structure of the tunica

At recent time both high and small technology firms are : at recent time both high and small technology firms are faced with the challenge of surviving in this dynamic and fast

Introduction and conclusion should be comprehensive and to : general requirements use the following information to ensure successful completion of the assignment read selected

First provide some background on the religion to which you : first provide some background on the religion to which you belong or with which you are most familiar. how long have

User Account

All Pages