A Leading regional airline that is now carrying 54% of all the passengers that pass through the Southeast is considering the possibility of adding a new long-range aircraft its fleet. 'Ilic aircraft being considered for purchase is the Boeing 717-200. which is quoted at $35 million per unit. Boeing requires a 10% down payment at the time of delivery. and the balance is to be paid over a 10-year period at an interest rate of 9% compounded annually. TI1e actual payment schedule calls for making only interest payments over the IO-year period. with the original principal amount to be paid off at the end of the I 0th year. ' Ilic airline expects Lo generate $40 million per year by adding this aircraft to its current fleet but also estimates an operating and maintenance cost of $30 million per year. The aircraftis expected to have a 15-year service life with a salvage value.! of 15% of the original purchase price. If the airline purchases the aircraft. it will be depreciated by the seven-year MAC RS property classification. The firm's combined federal and state marginal tax rate is 38%. and its MARR is 18°Ai.(a) Determine the cash flow associated wi1 h the debt financing.(b) Is this project acceptable?
A Leading regional airline that is now carrying 54% of all the passengers that pass through the Southeast is considering the possibility of adding a new long-range aircraft its fleet. 'Ilic aircraft being considered for purchase is the Boeing 717-200. which is quoted at $35 million per unit. Boeing requires a 10% down payment at the time of delivery. and the balance is to be paid over a 10-year period at an interest rate of 9% compounded annually. TI1e actual payment schedule calls for making only interest payments over the IO-year period. with the original principal amount to be paid off at the end of the I 0th year. ' Ilic airline expects Lo generate $40 million per year by adding this aircraft to its current fleet but also estimates an operating and maintenance cost of $30 million per year. The aircraft
is expected to have a 15-year service life with a salvage value.! of 15% of the original purchase price. If the airline purchases the aircraft. it will be
(a) Determine the cash flow associated wi1 h the debt financing.
(b) Is this project acceptable?
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