. Alessandro Sightseeing Company (AASC), located in Siena, owns a large fleet of helicopters for its tourism...

 

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Alessandro Sightseeing Company (AASC), located in Siena, owns a large fleet of helicopters for its tourism operation in Siena 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 and it would increase AASC's 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 $214,000. Purchase of the helicopter will require an increase in net operating working capital of $20,000. AASC is in the 34% tax bracket and has overall cost of capital 13.65 percent. You must show your work/calculations step by step and explain your approach in writing. Alessandro Sightseeing Company (AASC), located in Siena, owns a large fleet of helicopters for its tourism operation in Siena 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 and it would increase AASC's 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 $214,000. Purchase of the helicopter will require an increase in net operating working capital of $20,000. AASC is in the 34% tax bracket and has overall cost of capital 13.65 percent. You must show your work/calculations step by step and explain your approach in writing.

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