Hot Landings Homework

Hot Landings Homework - Sales VariableOperatingCosts

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Year 1 Sales  $450,000  Variable Operating Costs  $270,000   $26,000  Net Working Capital (?)  $4,000   $4,500  New turboprop aircraft would cost $1,500,000 Variable Operating Costs incl. wages = 60% of sales revenue each year One time consultant cost = $9500 (Sunk cost) King Air Upgrades Info: Upgrades = $135,000 7 year MACRS schedule depreciation (shown in notes) Financed with a 4 year bank loan for 80% of purchase price ($108k)  Annual pmts at the end of each of the 4 years @ 12% compounded annually  Resale Value at the end of 5 Years = $27,000 King Air: $0 Current Book Value $400,000 Current After-tax Resale Value (should this cost be considered as an opportunity cos $300,000 Pre-tax Resale Value in 5 Years Marginal Tax Rate = 38% Discount Rate = 13% Should Hot Landings accept the new contract? Present a handwritten spreadsheet of the cash flows.
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This note was uploaded on 02/06/2011 for the course BUS M301 taught by Professor Donahue during the Spring '11 term at IUPUI.

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Hot Landings Homework - Sales VariableOperatingCosts

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