The Golf Range is considering adding an additional driving range

jagguarpaw January 10, 2017 0 Comments

Question: The Golf Range is considering adding an additional driving range

 

The Golf Range is considering adding an additional driving range to its facility. The range would cost $229,000, would be depreciated on a straight-line basis over its seven-year life, and would have a zero salvage value. The anticipated revenue from the project is $62,500 a year with $18,400 of that amount being variable cost. The fixed cost would be $15,700. The firm believes that it will earn an additional $22,500 a year from its current operations should the driving range be added. The project will require $3,000 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? a. 7.47 percent b. 11.09 percent c. 8.68 percent d. 8.32 percent e. 12.14 percent