PLEASE HELP ASAP! Question #$3(15$ marks$)$

Air Alberta is considering replacing the firm's regional jets with a new model, which has a total purchase

price of $$15$ million.

The new jets will generate additional revenue of $$3\mathrm{.}5$ million per year for the $20$ years of the useful life

of the jets. Expected added operational costs of the jets are $25\%$ of revenues.

Air Alberta expects to use the new jets for $20$ years, at which time, they would be replaced. The

company estimates that all the new planes could be sold for a total of $$4\mathrm{.}7$ million $($salvage value$).$

The new regional jets have a CCA rate of $25\%(d=0\mathrm{.}25).$ Air Alberta has a corporate tax rate of $35\%.$

The purchase would require a $$2,000,000$ increase in net working capital, which would be returned to

Air Alberta when it sells the jets after $20$ years.

Required:

Using a discount rate of $15\%,$ calculate the NPV of the new jet purchase. Prepare a short memo and

discuss your recommendation on the purchase of the regional jets.