Question

The Tree Top Airline (TTA) is a small feeder-freight line started with very limited capital to serve the independent petroleum operators in the arid Southwest. All of its planes are identical, although they are pointed different colors. TTA has been contracting its plane overhaul work to Alamo Airmotive for $63,000 per plane per year. TTA estimates that, by building a $200,000 maintenance facility with a life of 6 years and a residual (market) value of $35,000 at the end of its life, they could handle their own overhaul at the cost of only $39,000 per plane per year. What is the minimum number of planes that they must operate to make it economically feasible to build this facility? The MARR is 27 % per year. (Enter your answer as a number without the dollar $ sign.)

Answer 1

		A	B	C=A+B	D	E=D*C
Particulars	Year	Cash Savings	Residual Value	Total Cash Inflow	PVF @ 27%	Present Value
Cash Inflow Flow from 1 Airplane	Year 1	24,000		24,000	0.787	18,898
Year 2	24,000		24,000	0.620	14,880
Year 3	24,000		24,000	0.488	11,717
Year 4	24,000		24,000	0.384	9,226
Year 5	24,000		24,000	0.303	7,264
Year 6	24,000		24,000	0.238	5,720
Sum of Cash Flow						67,704
Cash Inflow from Residual Value	Year 6	-	35,000	35,000	0.238	8,342

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