Liberty Airways is considering an investment of $800,000 in ticket purchasing kiosks at selected airports. The kiosks (hardware and software) have an expected life of four years. Extra ticket sales are expected to be 60,000 per year at a discount price of $40 per ticket. Fixed costs, excluding depreciation of the equipment, are $400,000 per year, and variable costs are $24 per ticket. The kiosks will be depreciated over four years, using the SL method with a zero salvage value. The onetime commitment of working capital is expected to be 1/12 of annual sales dollars. The after-tax MARR is 15% per year, and the company pays income tax at the rate of 34%. What’s the after-tax PW of this proposed investment? Should the investment be made?
Liberty Airways is considering an investment of
$800,000 in ticket purchasing kiosks at selected airports.
The kiosks (hardware and software) have an expected
life of four years. Extra ticket sales are expected to be
60,000 per year at a discount price of $40 per ticket.
Fixed costs, excluding depreciation of the equipment,
are $400,000 per year, and variable costs are $24 per
ticket. The kiosks will be depreciated over four years,
using the SL method with a zero salvage value. The
onetime commitment of working capital is expected to
be 1/12 of annual sales dollars. The after-tax MARR is
15% per year, and the company pays income tax at the
rate of 34%. What’s the after-tax PW of this proposed
investment? Should the investment be made?
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