Question

In an effort to capture the large jet market, Hiro Airplanes invested $11.264 billion developing its B490, which is capable of carrying 840 passengers. The plane has a list price of $276.5 million. In discussing the plane, Hiro Airplanes stated that the company would break even when 253 B490s were sold. Assume the break-even sales figure given is the cash flow break-even. Suppose the sales of the B490 last for only 12 years. How many airplanes must Hiro sell per year to provide its shareholders a rate of return of 17 percent on this investment?

Answer 1

Answer:

Compute equal annual cost for initial cost:
Initial cost	11,264,000,000
Life of project	12
Discount rate	17%
Future value of project	0
Equated annual initial cost =PMT(17%,12,-11264000000,0,0)	$2,258,044,314.85
Compute cash flow per plane:
Initial cost	11,264,000,000
Break-even number of planes	253
Cash flow per plane =(11,264,000,000/253)	44,521,739.13
Compute required number of planes to earn 17% return
Equated annual initial cost	2,258,044,314.85
Cash flow per plane	44,521,739.13
Number of planes	50.72

Thus the required number of planes are 50.72 approx