Fall 2014 Sport Finance Final Exam Perkins 1 Scenario: Your boss is the CEO of a new MLS (Major League Soccer) team has asked you to answer a very simple question. This question is whether she should be fearful of her meeting next week with the teams’ owners. You are exactly halfway through your first season and have enough financial information to begin an analysis that will answer your boss’ question. Major Assumptions: 1. We are currently exactly halfway through the year 2. There are NO inventories 3. Unless otherwise stated, no expense represents ‘exactly’ half its amount for the year 4. No TV Rights Revenue 5. Interest Rate is 3% Part I: DATA Cash: $24M Current Ratio: 1.4 Remaining Mortgage & Overhead bills for the remainder of year: $5M Exactly half the Player’s Salary Expense for the year was paid (guaranteed contracts): $20M Accounts Receivable Turnover Ratio: 4 Taxes paid thus far: $5.2M Mortgage paid thus far: $3M Overhead Expenses paid thus far: $8M Total Asset Turnover Ratio: 0.15 times Debt Ratio: 0.93 Return on Assets: 0.03 Stadium is valued at: $250M After this year, remaining Mortgage on Stadium: $240M Return on Equity: 39% ‘Player Salary Sponsorship’ Turnover (Sponsor Revenue/ Player Salary): 0.5 times Fall 2014 Sport Finance Final Exam Perkins 2 Average Ticket price for a game (30 games): $25 Part I Questions: (Organize the data and answer the following) 1. What was the Average Attendance per game? 2. If stadium capacity is 30,000, what average capacity percentage is the team trending at? Part II: Financial Statement Preparation. Organize this data into both, an Income Statement (representing the first half of the year) and a Balance Sheet (representing this point in time in the year) Part III: Assume Sponsorship Revenue stays flat for the next 5 years. Assume Average Ticket Price and Quantity remains same for second half of the year. Assume Player Salary stays the same for next two years, then grows by 10% in year 3 and stays at that level until year 5. Demonstrate the following: 1. Grow Stadium Game attendance by 7% each year for the next 5 years. Keep all other expenses the same. 2. Calculate the IRR and NPV for the 5-year forecast. (For IRR, use Stock Holder’s Equity as initial investment made) 3. Assuming our investors require an 8% IRR, and they’ve provided us with all the Stock Holder’s Equity, should our investors have provided us the equity?
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