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    Internal Rate of Return on a Project

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    The Golf Range is considering adding an additional driving range to its facility. The range would cost $76,000, would be depreciated on a straight line basis over its 7-year life, and would have a zero salvage value. The anticipated income from the project is $34,000 a year with $14,400 of that amount being variable cost. The fixed cost would be $16,200. The firm believes that it will earn an additional $13,000 a year from its current operations should the driving range be added. The project will require $2,000 of net working capital, which is recoverable at the end of the project. What is the internal rate of return on this project at a tax rate of 34 percent?

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    Solution Preview

    See attached Excel file for format and formulas.

    Initial investment
    Cost of driving range $76,000
    Net working capital $2,000
    Total initial investment $78,000

    Annual operating cash flows - years 1 to 7
    Income ...

    Solution Summary

    This solution helps find the internal rate of return on a project at a tax rate of 34 percent.