The firm expects that owning this new helicopter will result in additional accounts receivable of $8,000, additional cash requirements of $7,000 and various accounts payable of approximately $5,000.
The new helicopter will be depreciated using the 5-year MACRS schedule. It is expected to save $75,000 through reduced fuel and maintenance expenses. Bar T Ranch is in the 34% tax bracket and has a 12% cost of capital. Assume a 6 year time horizon.
Calculate the net present value of the helicopter purchase and state whether or not the firm should by it, and why. What is the IRR of this investment? At what discount rate would the firm begin to show a negative NPV? Explain your responses. Show your work and provide detail used to find the NPV for this investment.
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