Proposed Scoreboard Analysis
Essay by Nayyar03 • May 27, 2019 • Case Study • 1,302 Words (6 Pages) • 541 Views
Student Name: Akanksha Nayyar (211630084) Class 3: MACC 6301 Section Q
Proposed Scoreboard Analysis
Rate of Return (after tax) | 10% |
Rate of Return (before tax) | 8% |
Scoreboard Cost | $ 560,000 |
CCA Class 8 | 20% |
Tax Rate | 25% |
Net Income Calculation
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | |
Scoreboard Revenue | ||||||||
Regular Season Revenue | $ 120,000 | $ 120,000 | $ 120,000 | $ 120,000 | $ 120,000 | $ 120,000 | $ 120,000 | $ 120,000 |
Playoff Season Revenue* | $ 20,000 | $ 20,000 | $ 20,000 | $ 20,000 | $ 20,000 | $ 20,000 | $ 20,000 | $ 20,000 |
Total Revenue | $ 140,000 | $ 140,000 | $ 140,000 | $ 140,000 | $ 140,000 | $ 140,000 | $ 140,000 | $ 140,000 |
Scoreboard Expenses | ||||||||
Maintenance Costs | $ 3,000 | $ 3,000 | $ 3,000 | $ 3,000 | $ 3,000 | $ 3,000 | $ 3,000 | $ 3,000 |
Electricity Costs** | $ 560 | $ 560 | $ 560 | $ 560 | $ 560 | $ 560 | $ 560 | $ 560 |
CCA*** | $ 112,000 | $ 89,600 | $ 71,680 | $ 57,344 | $ 45,875 | $ 36,700 | $ 29,360 | $ 23,488 |
Total Expenses | $ 115,560 | $ 93,160 | $ 75,240 | $ 60,904 | $ 49,435 | $ 40,260 | $ 32,920 | $ 27,048 |
Net Income before Taxes | $ 24,440 | $ 46,840 | $ 64,760 | $ 79,096 | $ 90,565 | $ 99,740 | $ 107,080 | $ 112,952 |
Income Taxes | $ 6,110 | $ 11,710 | $ 16,190 | $ 19,774 | $ 22,641 | $ 24,935 | $ 26,770 | $ 28,238 |
Net Income after Taxes | $ 18,330 | $ 35,130 | $ 48,570 | $ 59,322 | $ 67,924 | $ 74,805 | $ 80,310 | $ 84,714 |
Net Present Value Calculation
Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
PV of Net Income (discounted at rate of return) | $ 16,664 | $ 29,033 | $ 36,491 | $ 40,518 | $ 42,175 | $ 42,225 | $ 41,212 | $ 39,520 |
NPV | $ 287,838 | |||||||
NPV of Scoreboard | $ 287,838 | |||||||
Cost of Scoreboard | $ 560,000 | |||||||
Benefit or Cost of Scoreboard | $ (272,162) |
Conclusion:
As can be seen from the above calculations, there is no benefit in purchasing the scoreboard as the cost of the scoreboard ($560,000) exceeds the NPV ($287,838) by $272,162. If TBT wants to purchase this scoreboard, the company must increase its advertising revenue, assuming that costs cannot be changed.
Assumptions:
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