A spreadsheet model on Excel

CB364 Introduction to Business Modelling

Assessment 3

Due date: 18 January 2016

You have been contracted by city officials and the owners of the Colorado Springs Sky Sox, a Minor League Baseball team, to help in the initial planning phases for building a new stadium near the western edge of Colorado Springs, Colorado. The current home of the Colorado Springs Sky Sox, Security Service Field, was built in 1959 and has a capacity of 8,400 seats. In the past two decades, however, attendance has been steadily growing to the point that the current stadium will soon no longer be large enough to meet projected ticket sales. In light of this, the Colorado Springs Sky Sox’ owners and city officials (i.e., your clients) are considering plans to build a larger and more modern stadium. Your task is to provide recommendations concerning the optimal size of the new stadium.

  • You have been provided an Excel file (called Ticket Sales.xlsx available on Moodle) showing the forecast for average number of home-game tickets that could potentially be sold from 2018 to 2035.
  • Building the new stadium will incur a fixed cost of $55 million plus $2 million per 1,000 of seating capacity (e.g., a 20,000 seat stadium would cost $95 million). Your clients have informed you that they are planning to draft a contract stipulating that 10% of the project’s fixed costs must be paid the day building works start (1 July 2016). A further 30% will be payable when work is completed (1 April 2018, just in time for the 2018 season). The remaining costs need to be paid in equal monthly payments at the end of each month during construction.
  • Starting in 2016, tickets will sell for $25. For each ticket sold, an additional $10 in concessions will also be earned from the purchase of food, drinks and memorabilia. The price of tickets and value of concessions are both expected to increase by 2% per year. In all, there are 72 regular home-games per season that are played from April through September. For simplicity, you can assume that games are spread evenly over the 6-month season (i.e., 12 games per month).
  • Your clients would like you to investigate the net present value of the projected cash-flow stream from the start of building in 2016 till the end of 2035. For accounting purposes, cash flows are assumed to occur at the end of each month. The discount rate is estimated at 15% per year compounded monthly.

It has not been determined exactly how big the stadium should be. Rather, the recommended size, and hence the projected cash-flow stream, will depend on the cost and projected revenue from ticket sales and concessions. Consequently, in carrying out your financial analysis, you should be able to make recommendations to your clients regarding the optimal size of the new stadium based on net present value. Additionally, you may want to investigate how uncertainty regarding the discount rate may affect optimal stadium sizing and associated cash-flow streams.

 

Instructions

  1. You will need to build a spreadsheet model in Excel to carry out your analysis. The model should be fully functional and interactive in that the inputs can be changed by a user (i.e., your seminar leader) and the model’s results automatically calculated and displayed. Please adhere to good spreadsheet practice. Additional points will be awarded for ingenuity and creativity and for the use of any advanced Excel functionalities.
  2. Produce a short written report of no more than 2 pages describing your analysis and an explanation of why your recommended solution is the best. This should be done in Microsoft Word or some other word processing application. Please include tables and or figures as part of your presentation.
  3. Upload electronic copies of your Excel model and your written report to Moodle before 23:59 on the due date specified above. Please note, late work will not be accepted and will receive a mark of 0.
  4. You should make note of the plagiarism policy below.
Plagiarism Policy

The project should be done individually. This applies both to the development of your Excel model and to the written report. Do not share your work or discuss your work with other students. If you need help, please contact your seminar leader or the module convenor.

There is a zero tolerance to plagiarism in this module. Anyone found violating the plagiarism policy will receive a mark of 0, both for the assessment and for the module as a whole (i.e., you will fail the module). This applies equally to the one receiving and to the one giving out his/her work.

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