The company wants to buy the jet for $ 1275,000 with a total annual fee of...

The company wants to buy the jet for $ 1275,000 with a total annual fee of $ 195,000, which consists of maintenance, license, and insurance costs.
Hourly operating costs are estimated at $ 275, which includes fuel costs, pilot fees, and so on. The company will use this jet for 140 hours per year for five years. The residual value of the jet aircraft at the end of year 5 is $ 400,000. The MARR
set by the company 15%.
c.) Determine the cost of the Capital Recovery of this jet!
d.) What is the Annual Worth of this decision?

Expert Solution

C. The cost of capital recovery will be equal to the Net Present Value of the jet. And the NPV has been calculated in the below table. Explanation is after the table-

The operating costs are -275*140 per year (cost of per hour travel multiplied by total hours traveled in an year).

The net cashflow is the sum of all cashflows in that year.

NPV has been calculated by the formula =NPV(MARR,cashflows)+initial investment. It can also be calculated manually by the following formula

So, the cost of capital recovery is -1858857.52

D. Annual worth is shown below. Explanation after it.

The annual worth has been calculated by the formula =PMT(interest rate, number of years, npv). It can also be calculated manually by the following formula-

where n is the number of years.

So, the annual worth of this decision is -554526.11

Rahul Sunny answered 2 years ago

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