Determine the internal rate of return for the project

Reference no: EM13197555

Scissortail Real Estate Partners is evaluating a proposal to purchase two idle manufacturing facilities located near Blackwell, Oklahoma. The combined cost of purchasing these properties would be $13 million. Each facility has 3000 amps of 480 volt 3 phase electrical power and close proximity to the air cargo facilities at Cherokee Strip regional airport. However, an immediate expenditure of $6 million dollars will be required to install cleanrooms in each facility and bring the electrical wiring into compliance with local building codes. The total time required to upgrade and resell both properties is expected to be four years. The CFO for Scissortail projects that at the end of two years the first facility can be sold for $20 million. The second facility, whose configuration is somewhat less desirable, will take four years to sell, with an expected selling price of $13 million. Revisions to the tax code designed to help stimulate the economy exempt any profits from renovating idle manufacturing capacity from all State and Federal taxes. Assuming that the date 2 cash flows from the project can be reinvested at an annual rate of 4.2 percent:

a. determine the internal rate of return for the project.

b. determine the reinvested rate of return for the project.

c. concisely explain why the reinvested rate of return is greater than or less than the internal rate of return for the project (no points will be awarded for a simple comparison of the internal rate of return and the reinvested rate of return).

Reference no: EM13197555

Questions Cloud

How a first responder will identify and preserve evidence : the video South Tower Falls, Shot Front of Trinity Church, describe your concerns as a first responder. (For the purpose of your response assume that you do NOT know whether this is a chemical, biological, radiological, nuclear, or simple explosiv..

To discuss the balance of fixed and variable cost : Businesses often decide between using automation and labor in production. An automotive environment may have high fixed costs and low variable costs.

Determine whether firm should undertake investment : The firm has an opportunity cost of capital of 10 percent and a corporate tax rate of 35 percent. Assuming that at the end of 9 years, soon to be enacted EPA regulations will make further investment in the production of asphalt shingles unprofitab..

Is a shift toward dna based identifications a good idea : What are some of the benefits and limitations of using DNA to identify victims of mass causalities. When answering take into account available resources, types of attacks, evidence collection and preservation, etc.

Determine the internal rate of return for the project : Determine the internal rate of return for the project and determine the reinvested rate of return for the project.

Discuss the relationship between healthcare quality and cost : Discuss the relationship between healthcare quality, access, and costs and how these three influence one another in our healthcare system. Also, identify factors in our system that may have an impact on these concepts.

Explain the profit – maximizing output and price : The monopolist has a constant marginal and average total cost of $50 per unit. Find the monopolist’s profit – maximizing output and price.

Determine whether the firm should purchase the centrifuge : Assuming that Valley Proteins has a tax rate of 30 percent and that their opportunity cost of capital (required return) is 10 percent, determine whether the firm should purchase the centrifuge from Harburg-Freudenberger or the Bird Machine Co. cent..

Determine the demand for gmc cars for the coming year : GMC wants to determine its production plan at each plant in the coming year. Based on the previous data, formulate a mixed integer programming model for solving GMC's production planning-capacity expansion problem for the coming year.

User Account

All Pages