The city of Greendale wants to contract with your company to build a new baseball stadium. They have received a bond issue that will provide for $100M for the project. The proposal is that 5 equal payments of $20M will be paid over the course of the project. The initial investment that your company will require is $20M. The projected annual labor and materials budget is $10M. Additionally, you will need to make a capital outlay of $20M in year 3 for new equipment. The company required a rate of return of 15%.
The stadium is an outdoor structure with a retractable roof. The project begins with clearing the site. Once the site is clear, work can start simultaneously on the structure itself and demolishing an adjacent building site. This demolition is necessary to create a construction stage for storing materials and equipment.
The work on the stadium begins by driving 160 support pilings. Next comes the pouring of the lower concrete bowl. Once this is done the construction site has been set up, then the pouring of the main concourse, the installation of the playing field, and the construction of the upper steel bowl can occur.
Once the concourse and upper bowl are completed, work can start simultaneously on building the luxury boxes, installing the sets, installing the jumbotron, and installing the stadium infrastructure which includes: bathrooms, lockers, restaurants, etc. once the seats are installed then the steel canopy can be constructed followed by the installation of the lights.
The retractable roof represents the most significant technical challenge to the project. Building the roof track supports can begin after the lower concrete bowl is constructed. At this time the dimensions of the roof can be finalized and the construction of the roof at a separate site can begin. After the roof supports are completed then the roof tracks can be installed. Once the tracks and the roof are complete then the roof can be installed and made operational. Once all activities are completed a final inspection is required prior to occupancy.
ASSIGNMENT:
1. Perform an NPV assessment to first determine whether your company should accept the contract.
a. If you decide to proceed what is the expected NPV value of the contract?
b. Develop a scope statement for this project.