Matthew Knight Arena : Financial Forecasting - Case Study Example

This ratio is known as cash realization ratio. According to the senate budget subcommittee (3), that was involved in the projection of the cash flow when the arena was being started, the projections for the year 2008 to 2012 closely matched to the actual figures. The cash flows were projected using past evaluation and the consistency of the figures for the last periods. Revenue and Cost Streams The firm generates much of its revenue from the men’s basketball, that s, from the income generated from the season tickets sales.

This income will comprise of construction fees, annual DAF contribution, high face value prices of tickets and ticket facility fee that will be sold for 2 dollars per ticket. Other revenues include the sales of tickets for football games, baseball, and golf and tennis games. The costs will be attributed to the operations that will be done to improve the generations of the revenues. The administration expenses will also cover part of the costs streams (University of Oregon, Senate Budget Committee 3).

Debt Service Coverage Ratios Debt has been projected to be 13 million every year for the next forty years. This is done mainly to service the 40 million F-bonds that were used in the initial financing of the Arena construction. According to the committee of budget; the proportion of debt has been projected to be 7% of the total annual budget. According to Hebel, the debt service coverage ratio is majorly the debt ratio against the net operating income. It measures the ability of a given firm to pay a specific type of loan, say an F-Bond in this case.

The ratio is calculated from the net operating income. The department of athletics projects an income of 93,866,316 dollars for the year 2013. The total expenses for the same year amount to 93,866,317. The net operating income for this department is (1) dollars (Hebel). The net operating income for the Arena was 5,755,043 dollars in the year 2012. The total debt serviced for that year amounted to 20,225,976 dollars. Dividing the net operating income for the period with the total debts serviced or repaid results to 0.28. Studies done prove that if the ratio is greater than 1.

0, the firm has the capability of servicing the debt using the cash at hand. This implies that there is no need for any emergency cash. In this case for instance, the loan is inadequate for servicing since the ratio is 0.24 (Hebel). Legacy Fund Projection Legacy funds are termed to be the investment fees the firm is expected tom earn. The fund has been projected to earn 5% annual income. Gifts, which are assumed to be part of the legacy fund, are projected to total to 20 million dollars per year.

The legacy fund comprises of four components, that is, the contributions made in terms of gifts, the earning retrieved from investments, the withdrawals that are made at financial year end and year-end balance. In the year 2012, the balance at the end of the year amounted to 62,055,474 dollars. The amount is projected to increase in the year 2013 with the amount projected being 76,883,207 dollars. In the subsequent, the amount is not consistent with figures ranging from 51,932957 in 2020 to 68,278,778 dollars in 2015 (University of Oregon, Senate Budget Committee 5).

Valuation of Matthew Knight Arena The first step in valuing any firm is estimating the cash flows and carrying out a discounted cash flow