Alessandro Sightseeing Company (AASC), located in Siena, owns a large fleet of helicopters for its tourism operation in Siena area. The companyis now considering the purchase of a new helicopter for $320,000 to replace the old one.The company should also pay an additional $30,000 to install ananti-icing system.The firm's old helicopter has a book value of $85,000, but can be sold for $98,000. It is being depreciated at the rate of $13,500 per year for four more years to zero salvage vale under the old depreciation method.

The new helicopter will be depreciated using the 5-year MACRS schedule and itwould increase AASC's before-tax revenues by $71,000 per year but would also increase operating costs by $10,000 per year due to the more sophisticatedmaintenance.The new helicopter will be sold after 6 year for $214,000.

Purchase of the helicopter will require an increase in net operating working capital of $20,000.

AASC is in the 34% tax bracket and hasoverall cost of capital 13.65 percent.

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