Refer to the data given in Problem 1645. The County Board of Representatives believes that if the
Question:
Refer to the data given in Problem 16–45. The County Board of Representatives believes that if the county conducts a promotional effort costing $20,000 per year, the proposed long runway will result in substantially greater economic development than was projected originally. However, the board is uncertain about the actual increase in county tax revenue that will result.
In Problem 16–45
Cost of acquiring additional land for runway...................................$ 70,000
Cost of runway construction........................................................... 200,000
Cost of extending perimeter fence.................................................. 29,840
Cost of runway lights..................................................................... 39,600
Annual cost of maintaining new runway....................................... 28,000
Annual incremental revenue from landing fees............................. 40,000
Required:
Suppose the board builds the long runway and conducts the promotional campaign. What would the increase in the county’s annual tax revenue need to be in order for the proposed runway’s internal rate of return to equal the county’s hurdle rate of 12 percent?
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...
Step by Step Answer:
Managerial Accounting Creating Value in a Dynamic Business Environment
ISBN: 978-0078025662
10th edition
Authors: Ronald Hilton, David Platt