Toledo Stadium
The city of Toledo has received a proposal to build a newmultipurpose outdoor sports stadium. The expected life of thestadium is 20 years. It will be financed by a 20-year bond paying8% interest annually. The stadium's primary tenant will be thecity's Triple-A baseball team, the Red Hots. The plan's backersanticipate that the site also will be used for rock concerts andcollege and high school sports. The city does not pay any taxes.The city's cost of capital is 8%. The costs and estimated revenuesare presented below.
Toledo Stadium table below:
Cash Outflows:
Construction Cost $12,000,000
Gen. Maint. $250,000 per year
Cash Inflows:
Red Hot's lease pymt $650,000 per year
Concerts $600,000 per year
College/High School Sports $50,000 per year
Required:
Should the city build the stadium? (Assume payments are made atthe end of the year.)
The Red Hots have threatened to move out of Toledo if they do notget a new stadium. The city comptroller estimates that the movewill cost the city $350,000 per year for 10 years in lost taxes,parking, and other fees. Should the city build the stadium now?State your reasoning.
Toledo Stadium
The city of Toledo has received a proposal to build a newmultipurpose outdoor sports stadium. The expected life of thestadium is 20 years. It will be financed by a 20-year bond paying8% interest annually. The stadium's primary tenant will be thecity's Triple-A baseball team, the Red Hots. The plan's backersanticipate that the site also will be used for rock concerts andcollege and high school sports. The city does not pay any taxes.The city's cost of capital is 8%. The costs and estimated revenuesare presented below.
Toledo Stadium table below:
Cash Outflows:
Construction Cost $12,000,000
Gen. Maint. $250,000 per year
Cash Inflows:
Red Hot's lease pymt $650,000 per year
Concerts $600,000 per year
College/High School Sports $50,000 per year
Required:
Should the city build the stadium? (Assume payments are made atthe end of the year.)
The Red Hots have threatened to move out of Toledo if they do notget a new stadium. The city comptroller estimates that the movewill cost the city $350,000 per year for 10 years in lost taxes,parking, and other fees. Should the city build the stadium now?State your reasoning.
