A Company wanted to buy a jet. The jet was only 6 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 for more details)

Initial Expenditures Year 1 Year 2 Year 3 Year 4 Year 5

Net cost of new jet $300,000

Additional Revenue $43,000 $76,800 $112,300 $225,000 $168,750

Additional operating costs 11,275 11,275 11,275 11,275 11,275

Amortization 45,000 66,000 63,000 63,000 63,000

Net increase in income (13,275) (475) 38,025 150,725 94,475

Compute payback period, internal rate of return (IRR), net present value (NPV), profitability index (PI) and total increase in after tax income.

Other info:

The corporate tax rate is 20%. The flotation cost is 2.50% before tax of the selling price for debt, preferred stock and common stock.