White Sands Resort is considering adding a new dock to accommodate large yachts. The dock would cost
Question:
White Sands Resort is considering adding a new dock to accommodate large yachts. The dock would cost $ 700,000 and would generate $ 144,000 annually in new cash inflows. Its expected life would be eight years, with no salvage value. The resort’s cost of capital and discount rate are 7 percent.
a. Calculate the internal rate of return for the proposed dock addition (round to the nearest whole percent).
b. Based on your answer to (a), should the resort add the new dock?
c. How much annual cash inflow would be required for the project to be minimally acceptable?
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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a PV Discount factor Annual cash inflow 700000 Discount factor x 14400...View the full answer
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Related Book For 
Cost Accounting Foundations and Evolutions
ISBN: 978-1111971724
9th edition
Authors: Michael R. Kinney, Cecily A. Raiborn
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