Problem:
The Philadelphia Phillies are interested in building a new stadium. The most cost-effective method of building the stadium is to fund it through ticket sales. To go ahead with this development, the Phillies must spend $ 100,000 for a land survey, $ 100,000 for building permits and $ 10,000,000 for its installation. The stadium will net the company an estimated $ 3,500,000 each year over the 5-year life of the formula. Calculate the Phillies cost of capital (Rrf = 5.65%, B = 1.25, Rm = 15%). Assume that cash inflows occur at the end of the year.
Calculate the NPV, and the Profitability Index (PI) for this project. Should the project be undertaken? Why?