Present Value of the Investment Assignment | Homework For You
American Airlines is considering adding a Los Angeles to Singapore route. The new route would require the investment in a new A350 plane costing $300 million. The airline plans on flying this route for only 5 years, because it could not obtain the necessary landing slots after such time. American will slavage the plane for $200 million after five years. The plane will be depreciated straight-line to zero over its five-year life. This route will bring in estimated revenues of $100 million per year and will have operating expenses of $55 million per year. This project will require an investment of $6 million in net working capital, which is recoverable at the end of the project. What is the present value of this proposed investment at a discount rate of 12% and a tax rate of 25%?
| -$55.2 million | ||
| -41.7 million | ||
| $175.7 million | ||
| -$120.9 million | ||
| $68.7 million |
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