Questions on Capital Budgeting$\_($topic for this week$).$

$2.$ A private jet charter firm in Champaign is considering adding a new jet to their fleet. For a simple NPV analysis they have made the following assumptions:

The cost of the new Global $5000$ jet would be $$50m.$

The lifetime is $25$ years with depreciation done on a straightline basis.

The appropriate discount rate for projects is $15\%.$

The corporate tax rate is $21\%.$

The rental revenue for year $1$ is $$15,000/$hour $($including the cost of fuel, taxes, airport fees etc.$)$ and this would increase annually at the rate of inflation $($assume this to be $2\mathrm{.}5\%$ over the next twenty five years$).$ i$.$e rental revenue in year $5$ would be $\frac{\text{\$}15,000(1+0\mathrm{.}025{)}^4}{?}$ hour

Fixed costs of owning the jet $($maintenance$,$ airport fees, insurance, marketing etc.$)$ are around $$1\frac{m}{?}$ year for year $1.$ You may assume that these costs also increase annually at the same rate of inflation.

The costs of operating are $$5,000/$hour when the jet is in use in year $1.$ You may assume that these costs also increase annually at the rate of inflation.

The charter firm believe that there is reasonable demand for this jet and estimate that it would be used around $500$ hours per year in year $1,$ increasing to $750$ hours per year in year $2,1000$ hours per year in year $3$ and staying at that level until $25$ years.

a$)$ Calculate the net present value of the investment in the new jet. $(1\mathrm{.}5$ pts$)$

b$)$ Based on your answer to part a$)$ above, please advise as to whether they should invest in the new jet $(0\mathrm{.}5$ pts$)$

Show me how to get the answer using excel please.