Problem 9-6 Internal Rate of Return and Taxes 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 Useful life of project in years Annual number of extra accommodated students Annual tuition per student Before-tax incremental cost of a student Company's income tax rate Required rate of return $ 350,000 6 5 $ 22,000 $ 2,000 40% 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. $ 110,000 Annual cash flow: Annual tuition Less costs: Incremental costs Depreciation Income before taxes Taxes Net income after taxes Depreciation Cash flow 10,000 58,333 41,667 25,000 25,000 58,333 $ 83,333 Present value factors: . factor Internal rate of return: IRR function Cash flows: 1 2 3 3 4 5 6 IRR 11.25% Should the company invest in the remodel