You must show your work step-by-step and write a paragraph (3 lines or so), for each problem, to explain your approach and findings. (i.e. you should explain your approach and findings in writing, not just stating accept or reject the project. Work without explanation receive zero)

Problem 2(6 points)

Atleti Azzurri Sightseeing Company (AASC), located in Salerno, owns a large fleet of helicopters for its tourism operation in Salerno area. The company is 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 an anti-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 (please use the table below) and it would increase AASCs before-tax revenues by $71,000 per year but would also increase operating costs by $10,000 per year due to the more sophisticated maintenance. The new helicopter will be sold after 6 year for $210,000.

Purchase of the helicopter will require an increase in net operating working capital of $20,000. The net operating working capital will be recovered after the new helicopter is sold.

AASC is in the 34% tax bracket and has overall cost of capital 12 percent.

5-year class

Year	MACRS %
1	20
2	32
3	19
4	12
5	11
6	6