1. Capital Budgeting 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 10. Note that any losses trigger tax benefits. Purchase Price Yearly Revenue Operating Costs Discount Rate Gate Renovation (Fit-out Costs) Revenue Inflator Tax Rate $31M $15M 51% of revenue 6% $3M (in year 5) 2.0% 21% What are the NPV and IRR of the gates? Should Argo invest in them? Why or why not?

1. Capital Budgeting 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 10. Note that any losses trigger tax benefits. Purchase Price Yearly Revenue Operating Costs Discount Rate Gate Renovation (Fit-out Costs) Revenue Inflator Tax Rate $31M $15M 51% of revenue 6% $3M (in year 5) 2.0% 21% What are the NPV and IRR of the gates? Should Argo invest in them? Why or why not?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 12PROB

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