Golden Cup PLC

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Golden Cup PLC. is the company responsible for managing and maintaining all sports
facilities at France. Given that France is hosting the 2024 Olympics, The CEO of Golden Cup
PLC. is considering plans to renovate spectator seating of the “Stade de France” or replace
with a new seating. Currently, “Stade de France” has a capacity of 78,338 spectators. in
2024, the marketing manager of Golden Cup PLC. forecasts to sell 100,000 tickets a year
with an increase of 5% each year through 2030, at an average price of £160. The spectator
seating of “Stade de France” is currently fully depreciated and has a salvage value of
£4,000,000 if replaced. If spectator seating of the “Stade de France” is renovated, the costs
of renovation are to be capitalized and depreciated over the useful life of the spectator
seating of the stadium.
The initial investment of renovating the spectator seating of the “Stade de France” is
£40,000,000, while the initial investment of replacing with a new one is £60,000,000. Both
alternatives have an estimated useful life of 7 years, after which the estimated disposal
value would be 7,000,000 and 15,000,000 of the renovation and replace alternatives,
respectively. The accounting department at Golden Cup PLC. has estimated that the cash
operating costs per ticket is 80 and 50 for the renovate and replace alternatives,
respectively.
Capital investment in each capital investment alternative would qualify for writing-down
allowances at 20% per annum on a reducing balance basis. Balancing allowance can be
claimed where applicable. For simplicity, assume no change in prices or costs in future
years. The investment will be made at the beginning of 2024, and all transactions thereafter
occur on the last day of the year. The minimum required rate of return for Golden Cup PLC.
is 12%. Golden Cup PLC. pays a 20% tax rate on all income. Tax is paid one year in arrears.

required
calculate Net present Value and payback period for the 2 alternatives
abd suggest which alternative to choose.