The Golf Range Is Considering Adding an Additional Driving Range

question 66

Multiple Choice

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?

• A) 7.53 percent
• B) 9.29 percent
• C) 11.47 percent
• D) 12.68 percent
• E) 14.04 percent

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Definitions:

Demand Schedule

A list or table showing how much of a good or service consumers will want to buy at different prices.

Elasticity

The degree to which the demand or supply of a product responds to changes in price or other factors, indicating how adjustments in price can influence market dynamics.

Income Elasticity

A measure of how much the demand for a good will change in response to a change in consumers' income.

Inferior Good

An inferior good is a type of good whose demand decreases when consumer income rises, in contrast to normal goods, whose demand increases with rising incomes.