123 Construction cost ($)4 Loan ($)A5Loan interest rate6 Loan term (yrs.)7 Hangar space (sq.ft.)8 Rent ($/sq.ft. per month)9 Rent inflator16171819Key Assumptions10 Operating Costs ($/yr.)11 Cost inflator12 Tax rate13 Discount rate14 Depreciation/year ($)1520211,250,000400,000BCash FlowsRent Incomeminus: Operating Costsminus: Interestminus: Depreciation= Taxable Incomeminus: Taxes6.0%524,0001.202.0%144,0002.0%21.0%7.0%10,000= Net Incomeminus: Principal= Net Operating Cash Flowminus: Cash Outlay at Startplus: Depreciation= Total Cash FlowsCStartDYear 1EYear 2FYear 3GYear 4HYear 5IYear 6JYear 7KYear 822232425262728NPVIRR2930 Note: Tax shields are the tax gains from expensing interest and depreciation. The formula is interest or depreciation expense times the tax rate31LYear 9MYear 10NTV0

Net Present Value=(Present Value of Cash Inflows-Present Value of Cash Outflows) IRR is a rate at…

Key Assumptions Construction cost ($) Loan ($) Loan interest rate Loan term (yrs.) Hangar space (sq.ft.) Rent ($/sq.ft. per month) Rent inflator Operating Costs ($/yr.) Cost inflator Tax rate Discount rate Depreciation/year ($) 1,250,000 400,000 Cash Flows Rent Income minus: Operating Costs minus: Interest minus: Depreciation = Taxable Income minus: Taxes 24,000 1.20 2.0% 144,000 6.0% 5 = - Total Cash Flows 2.0% 21.0% 7.0% 10,000 - Net Income minus: Principal = Net Operating Cash Flow minus: Cash Outlay at Start plus: Depreciation NPV IRR

Key Assumptions Construction cost ($) Loan ($) Loan interest rate Loan term (yrs.) Hangar space (sq.ft.) Rent ($/sq.ft. per month) Rent inflator Operating Costs ($/yr.) Cost inflator Tax rate Discount rate Depreciation/year ($) 1,250,000 400,000 Cash Flows Rent Income minus: Operating Costs minus: Interest minus: Depreciation = Taxable Income minus: Taxes 24,000 1.20 2.0% 144,000 6.0% 5 = - Total Cash Flows 2.0% 21.0% 7.0% 10,000 - Net Income minus: Principal = Net Operating Cash Flow minus: Cash Outlay at Start plus: Depreciation NPV IRR

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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