Tiny Air, Inc. is a small, profitable one-jet airline that flies four commuter flights daily between Houston and Dallas. Tiny Air is considering the purchase of an additional jet at a cost of $1,000,000. Tiny believes that there is a short-lived opportunity that will last exactly six years to provide service between Houston and San Antonio. (At the end of year 6, one of the majors will begin flying the route, making it unprofitable for Tiny.) For tax purposes, the jet can be depreciated over a 10-year life by the straight-line method. The CFO of Tiny Air is sure that the plane will be worth $700,000 at the end of the sixth year. The tax rate that Tiny Air pays is a flat 40%. Running a small airline is a risky business, so Tiny Air uses 20% as its cost of capital. Revenues associated with operating the route will be $900,000 per year and operating expenses (crew, fuel, etc.) will be $500,000/year.What is the net present value of the proposed new route? put up a spreadsheet template AND use to work the problem.

Answer rating: 100% (QA)

To calculate the net present value NPV of the proposed new route for Tiny Air Inc we will break down the problem into steps and then illustrate how th... View the full answer