A. A proposal to add a jet to the company's fleet. The plane was only six years old and was considered a good buy at $300,000. In return, the plane would bring over $600,000 in additional revenue during the next five years with only about $56,000 in operating costs. (See Table 1 for details) Table 1 Financial analysis of Project A: Add a twin-jet to the company's fleet Initial Expenditures Year 1 Year 2 Year 3 Year 4 Year 5 Net cost of new plane $300,000 Additional revenue $43,000 $76,800 $112,300 $225,000 $168,750 Additional operating costs 11,250 11,250 11,250 11,250 11,250 Depreciation 45,000 66,000 63,000 63,000 63,000 Net increase in income (13,250) (450) 38,050 150,750 94,500 Less: Tax at 33% 0 0 12,557 49,748 31,185 Increase in aftertax income ($13,250) ($450) $25,494 $101,003 $63,315 Add back depreciation $45,000 $66,000 $63,000 $63,000 $63,000 Net change in cash flow ($300,000) $31,750 $65,550 $88,494 $164,003 $126,315 B. A proposal to diversify into copy machines. The franchise was to cost $700,000, which would be amortized over a 40-year period. The new business was expected to generate over $1.4 million in sales over the next five years, and over $800,000 in aftertax earnings. (See Table 2 for details) Table 2 Financial analysis of Project B: Diversify into copy machines Initial Expenditures Year 1 Year 2 Year 3 Year 4 Year 5 Net cost of new franchise $700,000 Additional revenue $87,500 $175,000 $262,500 $393,750 $525,000 Additional operating costs 26,250 26,250 26,250 26,250 26,250 Amortization 17,500 17,500 17,500 17,500 17,500 Net increase in income 43,750 131,250 218,750 350,000 481,250 Less: Tax at 33% 14,438 43,313 72, 188 115,500 158,813 Increase in aftertax income $29,313 $87,938 $146,563 $234,500 $322,438 Add back depreciation $17,500 $17,500 $17,500 $17,500 $17,500 Net change in cash flow ($700,000) $46,813 $105,438 $164,063 $252,000 $339,938