Cash inflow from selling the old helicopter

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Bar T Ranches, Inc. is considering buying a new helicopter for $350,000. The company's old helicopter has a book value of $85,000, but will only bring $60,000 if it is sold. The old helicopter can be depreciated at the rate of $13,500 per year for the next four years. The new helicopter can be depreciated using the 5-year MARCS schedule. The new helicopter is expected to save $62,000 after taxes through reduced fuel and maintenance expenses. Bar T Ranches is in the 34% tax bracket and has a 12% cost of capital.

a. What is the cash inflow from selling the old helicopter?

b. What is the net cost of the new helicopter?

c. Calculate the incremental depreciation of the new helicopter

d. Calculate the net cash flows for the purchase

e. Calculate the net present value of the helicopter purchase and state whether or not the firm should buy it

Reference no: EM13154793

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