1. Capital Budgeting

Apache 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.

Purchase price - $25M Gate renovation (fit-out costs) - $11M (year 2 and in year 6)

Yearly revenue - $12M Revenue inflator - 2.8%

Operating costs - 40% of revenue

Discount rate - 10% Tax rate - 21%

D D X AutoSum" AY O Times New Ro V 12 VAA BIU - - A === = a Wrap Text 3 Merge & Center - General $ - % Paste , 8 Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles Clear Sort & Find & Filter - Select Editing Clipboard Font Alignment Number Cells E for Apache Gate Purchase B A C D E F Apache Gate Purchase G H I J K A 1 2 Purchase price 3 Fit-out costs 4 Yearly revenue 5 Revenue inflator 6 Operating costs (% of revenue) 7 Discount rate Tax rate 10 11 2 3 4 Year's 5 6 7 8 9 10 12 Investment 13 Revenues 14 Expenses 15 Income before tax 16 Taxes 17 Net income after tax | 18 NPV 19 IRR 26. Prob. 1 Prob. 2 Prob. 3 Prob. 4 Prob. 5 . + | J - + 130% O Type here to search OB I 07:24 01/14/2020 e C F