18. The Rose Hall Resort Ltd. is in the 34% tax bracket with a 15 percent...
18. The Rose Hall Resort Ltd. is in the 34% tax bracket with a 15 percent required rate of return (or cost of capital) and is considering a new project. This project involves the acquisition of a portfolio of 4 boutique hotels at a cost of $62,016,176.
Use the data below to calculate the project’s Payback, NPV, PI, IRR
Year 1 Year 2 Year 3 Year 4 Year 5v
Gross Profit $23,700,000 $30,900,000 $38,100,000 $23,700,000 $16,900,000
Depreciation 4,240,000 4,240,000 4,240,000 4,240,000 4,240,000
EBT 19,460,000 26,660,000 33,860,000 19,460,000 12,660,000
Less: Taxes 6,616,400 9,064,400 11,512,000 6,616,400 4,304,400
Net Income 12,843,600 17,595,600 22,348,000 12,843,600 8,355,600
Homework Answers
| Year | OCF |
| 0 | -62,016,176 |
| 1 | 17,083,600 |
| 2 | 21,835,600 |
| 3 | 26,588,000 |
| 4 | 17,083,600 |
| 5 | 12,595,600 |
| Payback | 2.87 |
| IRR | 17.00% |
| NPV | $2,861,864 |
Cash Flow (OCF) = Net Income + Depreciation
Payback Period is the no. of years it takes to recover the investment.
Payback Period = 2 + (62016176 - 17083600 - 21835600) / 26,588,000 = 2.87
IRR and NPV can be calculated using the same function on a calculator using 15% rate.
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