The Culinary Institute is considering a classroom remodeling project. The cost of the remodel would be $350,000 and will be depreciated over six years using the straight- line method. The model will...




The Culinary Institute is considering a classroom remodeling project. The cost of the remodel would be $350,000 and will be depreciated over six years using the straight- line method. The model will acoomoodate five extra student per year. Additional information related to the project follows:
Cost of the remodel project: $350,000


Useful life of project in years: 6


Annual number of extra students: 5


Annual tuition per student: $22,000


Before- tax incremental cost of a student: $2,000


Company's income tax rate: 20%


Required rate of return: 12%


Assuming a six- year time horizon, what is the internal rate of return of the remodeling project? Calculate using both present value factors and separately using Excel's IRR function.
P
lease include formulas to show how you arrive at each solution!


A) Annual cash flow:


Revenue                            ?


Less costs:
Other than depreciation        ?


Depreciation                       ?


Income before taxes           ?


Income tax expense            ?


Net income                        ?


Add depreciation                 ?


Cash flow                          ?


B) Present Value Factor- solve


?        /       ?       =    ? Factor


c) Indicate how the internal rate of return is calculated using the factor arrived at above.


d) IRR function



Cash Flows



Investment
1           2          3          4          5


      ?                  ?             ?         ?            ?         ?


IRR = ?


Should the company invest in the remodel?





Jun 04, 2022
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