The boston Culinary Institude is evaluating a classroom remodeling project. The

Question

The boston Culinary Institude is evaluating a classroom remodeling project. The cost of the remodel will be $300,000 and will be depreciated over 5 years using the straight-line method. The remodeled room will accommodate 5 extra students per year. Each student pays annual tuition of $22,000 The before-tax incremental cost of a student (e.g., the cost of food prepared and consumed by a student) is $2,000 per year. The companys tax is 40% and the company requires a 12% rate of return on the remodeling project. REQUIRED: Assuming a 5-year time horizon, what is the internal rate of return of the remodeling project? Should the company invest in the remodel? Cash flow per year: ________________________________________________________________ Revenue                                                         _____________ Less costs other than depreciation                    _____________ Depreciation                                                   _____________ Title                                                                _____________ Title                                                                _____________ Net income                                                     _____________ Title                                                               ______________ Cash Flow                                                      ______________ Annuity factor equals cost divided by annual cash flow:_______ For Excel To Determine the internal interest rate you must provide a matrix of cash flow as follows: Cash out: ______Negative values indicates cash flows out. Cash in year 1:_______Positive values indicates cash flows in. Cash in year 2:_______ Cash in year 3:_______ Cash in year 4:_______ Cash in year 5:_______ Excel internal rate of return (IRR) formula:________ The boston Culinary Institude is evaluating a classroom remodeling project. The cost of the remodel will be $300,000 and will be depreciated over 5 years using the straight-line method. The remodeled room will accommodate 5 extra students per year. Each student pays annual tuition of $22,000 The before-tax incremental cost of a student (e.g., the cost of food prepared and consumed by a student) is $2,000 per year. The companys tax is 40% and the company requires a 12% rate of return on the remodeling project. REQUIRED: Assuming a 5-year time horizon, what is the internal rate of return of the remodeling project? Should the company invest in the remodel? Cash flow per year: ________________________________________________________________ Revenue                                                         _____________ Less costs other than depreciation                    _____________ Depreciation                                                   _____________ Title                                                                _____________ Title                                                                _____________ Net income                                                     _____________ Title                                                               ______________ Cash Flow                                                      ______________ Annuity factor equals cost divided by annual cash flow:_______ For Excel To Determine the internal interest rate you must provide a matrix of cash flow as follows: Cash out: ______Negative values indicates cash flows out. Cash in year 1:_______Positive values indicates cash flows in. Cash in year 2:_______ Cash in year 3:_______ Cash in year 4:_______ Cash in year 5:_______ Excel internal rate of return (IRR) formula:________

Explanation / Answer

Hi,

Please find the answers as follows:

Depreciation Per Year = 300000/5 = 60000

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