The Boston Culinary institute is evaluating a classroom remodeling project. The cost of the remodel Will be $300,000 and will be depreciated over five years using the straight line method. The remodeled Room will accommodate five extra students (e.g.: the cost of food prepared and consumed by a student) Is $2,000 per year? The company's tax rate is 40 percent, and the company requires a 12 percent rate of Return on the remodeling project.
Required:
Assuming a five year time horizon, what is the internal rate of return of the remodeling project? Should the company invest in the remodel?