Financial Engineering

Question 5

A small business purchases a used airplane for $1,200,000; this is considered MACRS 5-year property. The business plans to keep the plane for the next 7 years. The business estimates that the equipment would generate annual time and travel savings of $300,000 per year. At the end of 7 years, the airplane would have a salvage value of $100,000. The tax rate is 25%, the aircraft is eligible for a Section 179 deduction, and that the small business uses an after-tax MARR of 8%. Compute the PW and determine whether the business should invest in the airplane.

(a) What is the present worth? Make a detailed spreadsheet table of all the components. Indicate all the formulas. Carry all interim calculations to 5 decimal places and then round final answer to a whole number.

(b) Should the small business invest in the airplane? Yes. No. Not enough information.

I need the answer ASAP. The wrong answer will get downvoted. Thanks.