2024 – Windsor Park Dominica is owned and operated by a private company Windees

Windsor Park Dominica is owned and operated by a private company, Windees Ltd. You work as the Facilities Manager of the Park and the CEO of the company has asked you to evaluate whether Windees should embark on the expansion of the facility given there are plans by the Government to host Cricket World Cup in 2020. 

 

The project seeks to increase the number of seats by building four new box seating areas for VIPs and an additional 5,000 seats for the general public. Each box seating area is expected to generate $400,000 in incremental annual revenue, while each of the new seats for the general public will generate $2,500 in incremental annual revenue. The incremental expenses associated with the new boxes and seating will amount to 60 percent of the revenues. These expenses include hiring additional personnel to handle concessions, ushering, and security. The new construction will cost $15 million and will be fully depreciated (to a value of zero dollars) on a straight-line basis over the 5-year life of the project. The company will have to invest $2 million in additional working capital immediately, but the project will not require any other working  by UniDeals” href=”http://www.homeworkmarket.com/content/windsor-park-dominica-owned-and-operated-private-company-windees-ltd-you-work-facilities-man#”>CAPITAL INVESTMENTS during its life. This working capital will be recovered in the last year of the project. The center’s marginal tax rate is 25 percent.

 

A.      What are the incremental cash flows from this project?  In other words determine the free cash flow of the project over its life.  (You may use the table below to work out this part of the problem) (6 points)

 

	Year 0	Years 1	Year 2	Year 3	Year4	Year 5
Capital Expenses
Working Capital
Revenue
Operating Expenses
EBITDA
D&A
EBIT
×(1 – t)
Net Income
D&A
Cash Flow from Operations
Working Capital
Free Cash Flows

B.      What is the Net Present Value if the project is assessed at a discount rate of 15% and should the project be accepted and why? (5 points)

 

C.      What is the Internal Rate of Return of the project and should the project be accepted and why.(4 points)