Solution-What is the internal rate of return of the

What is the internal rate of return of the expansion project

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Managerial Controls and Budgeting Problem - Capital Budgeting; Project Evaluation

SHU is evaluating a classroom expansion project. The cost of the expansion will be $750,000 and will be depreciated over 5 years using the straight-line method. A summary of the project details includes:

SHU Classroom Expansion - Project Summary
Cost of expansion	$750,000
Useful life of project in years	5
Annual number of extra accommodated students	8
Annual tuition per student	$35,000
Before tax incremental cost of a student	$4,500
SHU's income tax rate	30%
Required rate of return	12%

Required:

1. Assuming a 5 year time horizon, what is the internal rate of return (IRR) of the expansion project? Calculate using both present value factors (table) and using Excel's IRR function. Use the format provided on the answer sheet.

2. Based on your calculations, should SHU invest in the expansion?

Reference no: EM131756755

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What is the internal rate of return of the expansion project

Reference no: EM131756755

Reference no: EM131756755

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