Problem $9-6$ Internal Rate of Return and Taxes $-$ See Textbook page $9-30$

The Boston Culinary Institute is evaluating a classroom remodeling project. The cost of the remodel will be $$350,000$ and will be depreciated over six years using the straight$-$line method. The remodeled room will accommodate five extra students per year. Additional information relating to the project follows:

Cost of the remodel project $$350,000$

Useful life of project in years $6$

Annual number of extra accommodated 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 $12\%$

Required

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.

Annual cash flow:

Revenue

Less costs:

Other than depreciation

Depreciation $($straight$-$line$)$

Income before taxes

Income tax expense

Net income

Add depreciation

Cash flow each year

Present value factor:

$-$: $=$ factor

Indicate how the Internal rate of return is calculated using the factor arrived at above.

IRR function

Cash Flow Per Year

Investment $123456$

IRR Use the excel function in cell D$43$

Should the company invest in the remodel? Explain why or why not.