Blue Star Airlines is considering a three-year charter agreement with Adventure Leisure to transport its tour...

Blue Star Airlines is considering a three-year charter agreement with Adventure Leisure to transport its tour groups to their vacation destinations. If Blue Star goes ahead with the deal, it would need to invest $20.00 million up front in additional equipment. Blue Star’s estimated cost of capital, appropriate for this project, is 10.00% per year. The project’s free cash flows are estimated as follows:

Blue Star Airlines

Free Cash Flow ($ Millions)

Year 0

Year 1

Year 2

Year 3

Free Cash Flow

($20.00)

$5.75

$8.50

$12.50

Blue Star has asked for your help. Compute the NPV of the project. Identify the correct formula used to solve the previous problem

Compute the IRR to the nearest hundredth of a percent.Identify the correct formula used to solve the previous problem.

computing the discounted payback period for the project. Recall that Blue Star’s estimated cost of capital, appropriate for this project, is 10.00% per year .Identify the correct formula used to solve the previous problem.

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Expert Solution

jeff jeffy answered 1 year ago

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