Question

Washington Air Company is considering the purchase of a helicopter for connecting services between the company's base airport and the new intercounty airport being built about 30 miles away. It is believed that the chopper will be needed only for eight years until the Rapid Transit Connection is phased in. The estimates on two types of helicopters under consideration, the Whirl 2B and the ROT 8, are given in the table below.Assuming that the Whirl 2B will be available in the future with identical costs, what is the annual cost advantage of selecting the ROT 8? (Use an interest rate of 14%.) Click the icon to view the estimates on two types of helicopters under consideration. Click the icon to view the interest factors for discrete compounding when i= 14% per year. The annual cost advantage of selecting the ROT 8 is S□ (Round to the nearest dollar)

Answer 1

Answer:

Given

For ROT 8

First Cost P=$120,000

Annual Maintenance cost A=$7500

Salvage Value S=$16000

r=14%

n=8 years

So Annual cost advantage =Equivalent annual cost of initial investment P for 8 years-Equivalent annual cost of Salvage value S for 8 years+Annual cost A

Annual cost advantage =P*r/(1-(1+r)^-n) +A - S*r/((1+r)^n-1)=120000*14%/(1-(1+14%)^-8)+7500-16000*14%/((1+14%)^8-1)

Annual cost advantage = 25868.40+7500-1209.12=$32159.28