Capital Budgeting Apache Airlines is looking to buy some gates at a West Coast airport....
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Capital Budgeting Apache Airlines is looking to buy some gates at a West Coast airport. The key financial variables are below. Note that the gates revert back to the airport at the end of year 10. Purchase price - $25M Gate renovation (fit-out costs) - $11M (year 2 and in year 6) Yearly revenue - $12M Revenue inflator - 2.8% Operating costs - 40% of revenue Discount rate - 10% Tax rate - 21% What are the NPV and IRR of the gates, should Apache invest in them?
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