Restaurant Inc. plans to open its 100th restaurant by the end of next year. The new restaurant will require an initial investment of $150,000 and an annual operating cost of $31,000. It will have a $70,000 salvage value after 6 years. The company also estimates that the new restaurant will bring in revenue of $45,000 each year. Determine the acceptability of the investment using internal rate of return, IRR if the company's minimum attractive rate of return is 13% per year. a. What is the Internal Rate of Return, IRR for this project? (Please answer to 3 decimal places in percent form.) % b. Based on your answer to part a, is this project economically justified? No, it is not economically justified, IRR < MARR O Yes, it is a good project PW likely > 0 O No, it is not a good project economically because AW is greater than 0 O Yes, it is economically justified. IRR > MARR c. How much AR is required for this project to breakeven? (Assume that AR is a Uniform cash flow series, A.) (Note: AR can be $45,000 per year if the project is economically justified.)
Restaurant Inc. plans to open its 100th restaurant by the end of next year. The new restaurant will require an initial investment of $150,000 and an annual operating cost of $31,000. It will have a $70,000 salvage value after 6 years. The company also estimates that the new restaurant will bring in revenue of $45,000 each year. Determine the acceptability of the investment using internal rate of return, IRR if the company's minimum attractive rate of return is 13% per year. a. What is the Internal Rate of Return, IRR for this project? (Please answer to 3 decimal places in percent form.) % b. Based on your answer to part a, is this project economically justified? No, it is not economically justified, IRR < MARR O Yes, it is a good project PW likely > 0 O No, it is not a good project economically because AW is greater than 0 O Yes, it is economically justified. IRR > MARR c. How much AR is required for this project to breakeven? (Assume that AR is a Uniform cash flow series, A.) (Note: AR can be $45,000 per year if the project is economically justified.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Answer the given question with a proper explanation and step-by-step solution.
Use excel if possible.
Transcribed Image Text:Restaurant Inc. plans to open its 100th restaurant by the end of next year. The new restaurant will require an initial investment of
$150,000 and an annual operating cost of $31,000. It will have a $70,000 salvage value after 6 years. The company also estimates that
the new restaurant will bring in revenue of $45,000 each year. Determine the acceptability of the investment using internal rate of
return, IRR if the company's minimum attractive rate of return is 13% per year.
a. What is the Internal Rate of Return, IRR for this project? (Please answer to 3 decimal places in percent form.)
%
b. Based on your answer to part a, is this project economically justified?
No, it is not economically justified, IRR < MARR
Yes, it is a good project PW likely > 0
No, it is not a good project economically because AW is greater than 0
O Yes, it is economically justified. IRR > MARR
c. How much AR is required for this project to breakeven? (Assume that AR is a Uniform cash flow series, A.) (Note: AR can be
$45,000 per year if the project is economically justified.)
dollars.
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