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 15. Note that any losses trigger tax benefits. Purchase Price Yearly Revenue Operating costs Discount Rate Gate Renovation (Fit-out Costs) Revenue Inflator Tax Rate $35M $15.5M 45% of revenue 9% $6M (each in years 5 and 10) 2.2% 21% D M 0 Q Argo Gate Purchase Purchase price Fit-out costs Yearly revenue Revenue inflator Operating costs % of revenue) Discount rate Tax rate Years 7 Start 1 2 3 4 5 6 8 9 10 11 12 13 14 15 Investment Revenues Expenses Income before tax Taxes Net income after tax NPV IRR