**USING EXCEL**

CAPITAL BUDGETING Falcon Airlines, Inc.

As owner of Falcon Airlines, you are considering the purchase of a new de-icing machine. The machine will be used to remove ice from the wings of Falcons planes during winter. The new machine will cost $98,000, shipping costs of $2,000, and also will require $3,000 in working capital to support the new machines operation. The equipment will be depreciated over a 3-year period using MACRS and will have an expected salvage value of $4,000 at the end of its expected economic life of four years. The annual savings associated with the machine are expected to be $25,000 per year for the next four years. The company will not deduct the salvage value from the machines cost when calculating depreciation. The existing de-icing machine is one year old but is not adequate for the companys needs; it can be sold today for $40,000. The equipment was purchased for $60,000 and was being depreciated over a three-year period using the MACRS method. Falcon uses a hurdle rate of 11% for its capital budgeting projects and has a marginal tax rate of 30%. Determine whether you should purchase the new de-icing machine.

a. Determine the depreciation associated with the new machine, for each year using MACRS

b. Determine unused depreciation on old machine

c. Determine the cash inflows (after depreciation and taxes) associated with the new machine.

d. Determine the cash outflows associated with the machine. Then determine the present value of both the cash outflows and the cash inflows.

e. Determine the net present value of the proposed project, as well as the profitability index.

f. Determine the modified internal rate of return (MIRR) for the new machine.

g. Determine the payback period for the new machine.

h. Determine the discounted payback period for the new machine.