UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGNCollege of BusinessD E P A R T M E N T O F F I N A N C EFinance 321 – Advanced Corporate Finance – Spring 2007Case 2 (20 points)A-Rod: Signing the Best Player in Baseball - Harvard Business School Case 9-203-047Due April 5, 2007Pick up this case and the book Moneyball in the Finance Department office, 340 Wohlers. Keith Green has provided these to you compliments of Allstate.For this project you are to work in teams of four, and turn in one analysis for each team. Unless you let me know otherwise, I will assume you are working in the same teams as for case 1. The learning objectives of this case are:1. to apply regression analysis to determine the impact of additional wins by a baseball team on attendance, and therefore revenue. 2. to apply discounted cash flow analysis to a complicated set of cash flows Your analysis of this case should include the following:1) Executive Summary of 1-2 pages that briefly describes the situation and indicates your findings. This section should not assume that the reader has read the case, or already knows about the issues involved. In business, this is the most important aspect of your report, since in practice many people will read only this part of your report. Thus, it has to be a well written, stand-alone document that provides all necessary information, with the details left to the rest of the report.2) What is the pre-tax present value of the incremental costs of signing Alex Rodriguez? 3) How many extra tickets do you expect the Rangers to sell each year if they sign Rodriguez? What is the pre-tax present value of those additional spectators? (Apply regression analysis to determine this. There is more than one way to do this, and more than one set of variables to include.)4) Assume that the probability of the Rangers making the playoffs without Rodriguez is 4/14, and that it would increase to 6/14 if he is on the team. Assume the chance of advancing to the League Championship if they make the playoffs is 50% with or without Rodriguez, and the chance of advancing to the World Series is 50% with or without Rodriguez if they are in the League Championship. Calculate the change in probability of the Rangers participating inthe League Championship and the World Series and the expected pre-tax cash flows and associated pre-tax present value if they sign Rodriguez.5) What impact will the signing of Rodriguez have on the potential sale price of the Rangers? Assume that the Rangers would be sold in ten years, right after his contract expires. Calculate the pre-tax present value of any increase in sales price of the team.6) What are the key risks involved in this contract for the Rangers? How can these risks be mitigated? 7) Should the Rangers offer Rodriguez this contract? Explain your decision.8) Calculate the value of Rodriguez to each of the two teams listed on the front page your Case 1 report. Use the regression analysis you performed for question 3 to determine the extrarevenue from any increase in attendance he would generate for the team, the increase in revenue from additional playoff potential as calculated in question 4, and any increase in the team’s sale price as calculated in question 5, all adjusted as necessary to reflect the teams youare representing. Determine the pre-tax present value of the largest contract you would recommend that each team make for Rodriguez. Indicate any assumptions you made in performing this calculation. How do these offers compare with the Rangers’ offer?9) Are there any additional factors that should be considered with this case? If so, please describe them.The Case Study method is intended to provide practice in writing business reports on realistic situations. While this class does not teach business writing, your report will be graded based on the appropriate use of business writing skills. Spelling and grammar are expected to be correct and the report should look professional. The report should be typed and can include spreadsheets, but should not include hand drawn figures or handwritten calculations. The case itself provides most of the information you need to perform the analysis, but in order to obtain full credit on this assignment (20 points) you also need to find and utilize other relevant information. Please cite the source of any additional material used in your report.Keith Green has provided an example of the calculations involved in this case in his lecture on March27. You may base your analysis on this approach, but you need to perform your own regression analysis to determine the expected additional attendance per