In addition to the revenue earned from match tickets, your local football club earns a significant amount of revenue from the concessions – beer, food, coffee etc.
One football club, recently promoted to the top league in England, is trying to improve their game day revenue by upgrading the concession facilities in their stadium. The investment involved is as follows:
The project has an initial construction cost of £356,000.
They will depreciate these assets over 5 years, after which they expect to need to refurbish the concession areas again with only limited residual value from the current proposed concession. (£45,000).
The nett increase in cash flow expected for each of the five years is as follows:
Y1: £80,000 Y2: £100,000 Y3: £120,000 Y4: £140,000 Y5: £140,000
The football club is considering this development. The alternative use of this capital is to invest in a new corporate hospitality facility which would yield an IRR of 12%.
A. Calculate the NPV for the planned refurbishment of the concession facilities at the football club.
B. Would you recommend pursuing this project?
C. Are there any other factors not detailed that might influence your recommendation?
Exchange rate is the price of one country’s currency in terms of another country’s currency. Companies can protect themselves from the risk involved with potential loss from a currency fluctuation by hedging.
a. Outline at least four examples of methods companies can use to hedge funds and suggest when each are more suitable / appropriate for a company.
b. Offer your view as to whether it is better for a country to have higher or lower exchange rates, and what are the risks with both.