To generate some extra cash you are debating buying some season tickets to various sports teams and then reselling them on StubHub. You already paid $25,000 for the rights to purchase tickets that are not refundable. If you buy tickets, you believe you can sell 400 tickets per year for $225 each. Each ticket will cost you $150. To sell the tickets, you need to set aside $10,000 today for ticket inventory as well as $5,000 for fixed investments. (Note: inventory is net working capital). You believe you will sell tickets for the next 5 years. If you fully recover the working capital at the end of the project (i.e. the net working capital in the last year is 0), depreciate all of your incremental fixed investments to zero using straight-line depreciation, have a tax rate of 40%, and the project has a discount rate of 12%, should you start selling the tickets?
