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What is the net present value of the stadium project, which is a 2-year project where Fairfax Pizza would sell pizza in the baseball stadium? The project would involve an initial investment in equipment of 65,000 dollars today. To finance the project, Fairfax Pizza would borrow 65,000 dollars. The firm would receive 65,000 dollars from the bank today and would pay the bank 72,800 dollars in 2 years (consisting of an interest payment of 7,800 dollars and a principal payment of 65,000 dollars). Cash flows from capital spending would be 0 dollars in year 1 and 6,000 dollars in year 2. Operating cash flows are expected to be 37,050 dollars in year 1 and 40,950 dollars in year 2. The cash flow effects from the change in net working capital are expected to be -16,000 dollars at time 0; -0 dollars in year1 ; and 16,000 dollars in year 2. The tax rate is 15 percent. The cost of capital is 10.07 percent and the interest rate on the loan would be 3.46 percent.

Financial Management, Finance

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