Background -
Q1) Ford is going to purchase a Super Bowl ad for $3.5M. They expect to generate 110M views. Their research shows that they convert 1 out of every 100,000 customer views per month for 6 months into customers. Their average profit per customer is $1,000.
Q2) The Atlanta Falcons want to build a new stadium. They expect the stadium will last 25 years. They are deciding if they should put a roof on the building. The roof will cost $150M. They will finance the roof using debt that will cost 5%. Part of the roof costs includes solar panels that are expected to save the Falcons $1M per year in energy costs. Energy costs are expected to grow at 3% per year. In addition, the more pleasant climate a roof will provide is expected to increase ticket value and the ability to have other events. The Falcons expect the incremental profit to be $7.5M in year one, and they expect that to grow by 3% as well.
Assignment - Using the facts detailed above, answer the following questions:
Q1) a) What is the return of the investment?
b) What is the payback period? If Ford requires ad spend to be paid back in 3 months, do they make this spend?
c) Ford has an opportunity to earn a return of 2% per month on the money if they do not do this. What is the Net Present Value of the investment?
Q2) a) Should the Falcons add a roof?
b) The Falcons may have been a bit aggressive. Incremental profit will still be $7.5M, but it will grow at 2% per year. Should they add the roof?
c) The Falcons realize that the solar panels will still be valuable in 25 years and they will be able to resell them for $10M. Should they add the roof?
Submission - An Excel Workbook with both calculations and answers.