A feasibility study for constructing and operating a race track facility

Abstract

Purpose: The purpose of the study is to assess the financial viability of constructing and operating a racetrack facility over a 23-year period. Apart from looking at the racetrack itself, additional services and facilities were considered, such as a karting track, restaurant, open spaces for rent and a hotel. The value of the study lies in the lack of local financial research in this sector and the current discussions relating to the Expression of Interest for such a racetrack facility published by the Government of Malta receiving the interest of 5 international bidders. Design: Several discussions with stakeholders from various industries and spread over multiple European countries led to the capital and operational expenditures being established, as well as the revenues expected from the facilities included in the complex. Investment appraisal techniques, scenario and sensitivity analysis were calculated so as to assess the financial feasibility of the investment, over a 23-year period. Findings: This study found that by reaching the targets set out, a positive NPV in excess of €4,000,000 would be achieved, with the initial capital expenditure recovered during the twentieth year. An initial capital of €70,000,000 is required, with 70% of this financed through a bank loan. Conclusions : The main conclusion of this study is that the investment is feasible should the established targets be reached. The sensitivity to the discount rate and net cash inflows should be noted, mainly due to the substantial initial capital required. Implications: This study shows how an investment similar to the one proposed is feasible and can be undertaken, whilst considering the initial capital expenditure required and the importance of the support of the Government.