O.J. Simpson plans to build a Park that runs for the next 25 years. O.J....
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O.J. Simpson plans to build a Park that runs for the next 25 years. O.J. would immediately need to start construction on the land which he bought 2 years ago. Current market value of the land is $4 million and is expected to be sold for $4 million at the end of year 25. $27.9 million need to be spend for computers and other equipment. Total salvage value of the equipment will be $2.9 million. A new building will cost $60 million and will have $10 million salvage value. The park could handle 5,000 visitors each day for 300 days a year, each paying $40 daily admission. O.J. will pay Freddy, the new manager, a salary of $3.3 million per year, $15 million per year for additional labor, and $3.7 million per year for utilities. O.J. will hire new lawyers to be paid $9.5 million per year. O.J. mentioned that his current lawyer, Monica Lewinski, could also help. Five years ago Monica signed 30-year contract promising annual salary of $2 million to provide unlimited legal services. She will not need any increase in her salary if she is also helping in Park. O.J. recently paid $0.7 million to Mr. McDougals firm for tax accounting advice. The average business tax rate is 40%. O.J. could depreciate the buildings and equipment on a straight line basis for 25 years. Last month O.J. hired Freddys girlfriends firm to make a marketing survey. She just billed him $0.4 million for that. If the Park opens then she will continue to provide unlimited marketing services to the Park for $0.5 million annually. O.J. will need a working capital of $20 million immediately. This amount will be recovered at the termination of the business. O.J. has only $2.7 million and the rest of the money needed to finance the project will be borrowed from a bank. The loan will be amortized for over the life of the project and the interest will be 10.7%. O.Js required rate of return is 13.85%. What is the incremental third year operating cash flow? | |||||||||||||||||
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