What is the net present value of the stadium project

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Reference no: EM131062908

Fairfax Pizza sells pizza in Northern Virginia and is evaluating the stadium project, which would involve selling pizza in the baseball stadium for 2 years, starting today. Based on the following information, what is the net present value of the stadium project? The project would involve an initial investment in equipment of 85,000 dollars today. Cash flows from capital spending would be 0 dollars in year 1 and 20,000 dollars in year 2. To finance the project, Fairfax Pizza would borrow 85,000 dollars. The firm would receive 85,000 dollars from the bank today and would pay the bank 91,800 dollars in 2 years (consisting of an interest payment of 6,800 dollars and a principal payment of 85,000 dollars). There would be no loan payments in 1 year. Operating cash flows are expected to be 58,650 dollars in year 1 and 51,000 dollars in year 2. The tax rate is 45 percent. The cost of capital is 7.47 percent.

Reference no: EM131062908

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