Question

In: Finance

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life...

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $28 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $27 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $28 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $27 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and the company's cost of capital is 9%.

By how much would the value of the company increase if it accepted the better project (plane)? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
$ million

What is the equivalent annual annuity for each plane? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.

Plane A $ million
Plane B $ million

the company's cost of capital is 9%. By how much would the value of the company increase if it accepted the better project (plane)? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million What is the equivalent annual annuity for each plane? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places. Plane A $ million Plane B $ million

Solutions

Expert Solution

SEE IMAGES

GO THROUGH IT. ANY DOUBTS, FEEL FREE TO ASK. GIVE POSITIVE FEEDBACK


Related Solutions

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life...
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flow of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero,...
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life...
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero,...
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life...
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $29 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $24 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero,...
Unequal Lives Shao Airlines is considering two alternative planes. Plane A has an expected life of...
Unequal Lives Shao Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million and will produce net cash flows of $28 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $27 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and...
Unequal Lives Shao Airlines is considering the purchase of two alternative planes. Plane A has an...
Unequal Lives Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $27 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to...
Unequal Lives Shao Airlines is considering the purchase of two alternative planes. Plane A has an...
Unequal Lives Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $29 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $24 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to...
Shao Airlines is considering two alternative lanes. Plane A has an expected life of 5 years,...
Shao Airlines is considering two alternative lanes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and the company’s...
Titanic Airlines is considering two alternative planes. Plane A has an expected life of 5 years,...
Titanic Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Titanic plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and the company’s...
Davis Industries is considering two alternative machines. Machine A has an expected life of 4 years,...
Davis Industries is considering two alternative machines. Machine A has an expected life of 4 years, will cost $10 million, and will produce net cash flows of $3 million per year. Machine B has a life of 10 years, will cost $13 million, and will produce net cash flows of $2.5 million per year. Inflation in operation costs, machine costs is expected to be zero, and the company’s cost of capital is 10. Which machine should Davis Industries select?
Davis Industries is considering two alternative machines. Machine A has an expected life of 4 years,...
Davis Industries is considering two alternative machines. Machine A has an expected life of 4 years, will cost $10 million, and will produce net cash flows of $3 million per year. Machine B has a life of 10 years, will cost $13 million, and will produce net cash flows of $2.5 million per year. Inflation in operation costs, machine costs is expected to be zero, and the company’s cost of capital is 10. Which machine should Davis Industries select?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT