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Suppose that you work at an outdoor performing arts center and are evaluating a project...

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Finance

Suppose that you work at an outdoor performing arts center and are evaluating a project to increase the number of seats by building four new box seating areas and adding 5,000 seats for the general public. Each box seating area is expected to generate $400,000 in incremental annual revenue, while each new seat for the general public will generate $2,500 in incremental annual revenue. The incremental expenses associated with the new boxes and seating will amount to 60% of the revenues. These expenses include hiring additional personnel to handle concessions, ushering, and security. The new construction will cost $10 million and will be fully depreciated (to a value of zero dollars) on a straight-line basis over the 10-year life of the project. Assume the expansion area has a terminal value of $1.2 million at the end of the project. The center's marginal tax rate is 30 percent. The cost of capital is 15%. What are the incremental cash flows from this project?

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