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What are the NPV and IRR of the gates

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Reference no: EM132947026

Question - Argo Airlines is looking to buy some gates at a West Coast airport. The key financial variables are below.

Note that the gates revert back to the airport at the end of year 15. Note that any losses trigger tax benefits.

Purchase Price $22M

Yearly Revenue $11M

Operating Costs 43% of revenue

Discount Rate 6.6%

Gate Renovation (Fit-out Costs) $3M (in year 5 and 10)

Revenue Inflator 1.2%

Tax Rate 21%

Required - What are the NPV and IRR of the gates? Should Argo invest in them? Why or why not?

Reference no: EM132947026

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