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. Please 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?
The Culinary Institute is considering a classroom remodeling project. The cost of the remodel would be $350,000 and will be
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
Assuming a six- year time horizon, what is the
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?
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