A company is considering adding an additional driving range to its facility. The

Question

A company is considering adding an additional driving range to its facility. The range would cost $76,000, would be depreciated on a straight line basis over its 7-year life, and would have a zero salvage value. The anticipated income from the project is $34,000 a year with $14,400 of that amount being variable cost. The fixed cost would be $16,200. The firm believes that it will earn an additional $13,000 a year from its current operations should the driving range be added. The project will require $2,000 of net working capital, which is recoverable at the end of the project. What is the internal rate of return on this project at a tax rate of 34 percent? Show Work

Explanation / Answer

a. 7.53%IRR = IRR(-78000,14515,14515,14515,14515,14515,14515,16515) = 7.53%

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