- Marginal tax rate is 26.3%
- What is EBIT in each year?
- How much tax do you pay for the project every year?
The plan is to offer three flights a day, every day of the year, in each direction. Assume that there are no technical or legal impediments to offering the proposed service. Your marketing department has done a preliminary market study and expects operating revenue to be 6.0 cents per Available Seat Mile (ASM) in year 1 of the new route and then to increase linearly to the current (2021) average by year 4. It is estimated to remain constant at that level thereafter. Assume that all cash flows occur at the end of the year. Southwest currently has two surplus Boing 737-300 jets which are not used for anything and are parked on the runway in Oklahoma. The jets were bought for $46 million each 11 years ago. Jets of the same model, age and condition currently trade for $6 million in the used jet market. Both jets would require a refurbishment costing $1.5 million. The jets and the refurbishment fall into the 7-year MACRS category. Both planes can be safely operated for another 10 years, after which they will be sold for parts. The value of parts will be $1.8 million. You need to put up $0.6 million to finance the day-to-day operations of the jet, such as paying staff on time, paying bills from the catering company, airport landing fees etc., before launch. An additional $30,000 is needed every year until year 10, when all outlays will be recouped. (This means $30,000 more than the previous year, through year 9.) - You can expect the following costs for each jet (costs are the same everywhere): Annual maintenance: $900,000 Landing fees of $9 per metric ton of the jet's maximum takeoff weight Terminal fees of $390 per take-off Jet fuel: 23.5% of operating expenses per ASM as reported in most recent (2021) annual report Salaries and benefits for flight crew and ground crew: $1.5 million per year Advertising and salaries of administrative staff: $1.2 million per year The plan is to offer three flights a day, every day of the year, in each direction. Assume that there are no technical or legal impediments to offering the proposed service. Your marketing department has done a preliminary market study and expects operating revenue to be 6.0 cents per Available Seat Mile (ASM) in year 1 of the new route and then to increase linearly to the current (2021) average by year 4. It is estimated to remain constant at that level thereafter. Assume that all cash flows occur at the end of the year. Southwest currently has two surplus Boing 737-300 jets which are not used for anything and are parked on the runway in Oklahoma. The jets were bought for $46 million each 11 years ago. Jets of the same model, age and condition currently trade for $6 million in the used jet market. Both jets would require a refurbishment costing $1.5 million. The jets and the refurbishment fall into the 7-year MACRS category. Both planes can be safely operated for another 10 years, after which they will be sold for parts. The value of parts will be $1.8 million. You need to put up $0.6 million to finance the day-to-day operations of the jet, such as paying staff on time, paying bills from the catering company, airport landing fees etc., before launch. An additional $30,000 is needed every year until year 10, when all outlays will be recouped. (This means $30,000 more than the previous year, through year 9.) - You can expect the following costs for each jet (costs are the same everywhere): Annual maintenance: $900,000 Landing fees of $9 per metric ton of the jet's maximum takeoff weight Terminal fees of $390 per take-off Jet fuel: 23.5% of operating expenses per ASM as reported in most recent (2021) annual report Salaries and benefits for flight crew and ground crew: $1.5 million per year Advertising and salaries of administrative staff: $1.2 million per year
