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 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 sho Cash inflow from selling old helicoter $60000 Net Cost of New Helicopter Cost of new helicopter less cash inflow from the sale of old helicopter 290000 Incremental depriciation of new helicopter Calculating deprication for new helicopter on the basis of MARCS Year Table Depriciation on new helicopter Depriciation on Old Helicopter 1 20% 70000 13500 2 32% 112000 13500 3 19.20% 67200 13500 4 11.50% 40250 13500 5 11.50% 40250 13500 Total 329700 67500 Incremental Depriciation 262200 Calculating Net cash flows for the purchases Yr 1 2 Saving 62000 62000 Deprication 70000 112000 Cash Flow 132000 174000 Calculating NPV year Cash flows Present value @12% 0 -350000 1 132000 2 174000 3 129200 4 102250 5 102250 NPV The project should be considered

3 62000 67200 129200

Present value 0.89 0.8 0.71 0.64 0.57 117862.8 138712.8 91964.56 64979.88 58016.65 471536.69 121536.69

6 39401 35178.000 if it is sold. Bar T Ranches is in the 34% tax bracket and has a 12% cost of capital whether or not the firm should buy it.bring $60. n Old Helicopter 4 5 62000 62000 40250 40250 102250 102250 62000 62000 62000 62000 62000 55359. uced fuel and maintenance expenses.4 44131. r the next four years.8 .8 49426.

a 12% cost of capital. .