Should flower recommend purchase of the asset

Assignment Help Financial Management

Reference no: EM131903124

1) Ghost Squadron Historical Aircraft, Inc. (GSHAI) is considering adding a rare World War II B-24 bomber to its collection of vintage aircraft. The plane was forced down in Burma in 1942, and it has remained there ever since. Flying a crew to Burma and collecting the wreckage will cost $100,000.

Transporting all the parts to the company's restoration facility in Texas will cost another $35,000. Restoring the plane to flyable condition will cost an additional $600,000 at t0 GSHAI's operating costs will increase by $40,000 a year at the end of years 1 through 7 (on top of the restoration costs).

At the end of years 3 through 7, revenues from exhibiting the plane at airshows will be $70,000. At the end of year 7, the plane will be retired. At that time, the plane will be sold to a museum for $500,000.

The plane falls into the MACRS depreciation class for seven-year assets. GSHAI's combined federal and state income tax rate is 35 percent, and the company's weighted average cost of capital is 12 percent. Calculate the NPV and IRR of the proposed investment in the plane.

2) Kendrick Duckworth has entrusted financial analyst Flower Belle Lee with the evaluation of a project that involves buying a new asset at a cost of $90,000. The asset falls under the MACRS three-year class and will generate the following revenue stream:

End of Year	1	2	3	4
Revenues ($)	50,000	30,000	20,000	20,000

The asset has a resale value of $10,000 at the end of the fourth year. Duckworth's discount rate is 11 percent. The company has an income tax rate of 30 percent. Should Flower recommend purchase of the asset?

Reference no: EM131903124

Questions Cloud

What is the role of savings in the economy : Explain TIPS (treasury inflation protected securities), and their advantages and disadvantages. (Briefly in about 150-200 words)

European civilization influenced post-medieval europe : "Analyze one way in which non-European civilization influenced post-medieval Europe. Be sure to use a specific non-European civilization in your analysis."

Prominent consumer products firm : Star, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt.

Contrast the establishment of the new nation-states : Compare and contrast the establishment of the new nation-states of Italy and Germany in nineteenth-century Europe;

Should flower recommend purchase of the asset : Duckworth's discount rate is 11 percent. The company has an income tax rate of 30 percent. Should Flower recommend purchase of the asset?

What are the hprs for the three bonds : What are the current prices of three bonds based on the initial YTM given? What are the HPRs for the three bonds?

What is the discount rate r for which this projects pv : A firm invests $3 million in a project which will yield a perpetuity of $1million per year. What is the discount rate r for which this project's PV is $4.5 mill

Comparisons and total execution time of each algorithm : Execute the sort algorithms against the same list, recording information for the total number of comparisons and total execution time for each algorithm

Major negative impact of the columbian exchange : What was the major negative impact of the Columbian Exchange? How did sweet potatoes end up in China?

User Account

All Pages