Question

Problem 10-16 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 $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 fores is expected to be zero, and the company's cost of capital is 9% a. By how much would the value of the company increase if it accepted the better project (plone)? Enter your answer in milions. 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 b. What is the equivalentualnuty for each plane? Enter your answer in milions. 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 Pane B millon Check My Work (3 remaining)

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins - 2x % Cut AutoSum - A Calibri 11 AA = = = pt Wrap Text General Ea Copy Fill Paste B I U B- SF A Merge Merge & Center - Center $ -% % 4:0 .00 Format Painter . Conditional Format Cell Insert Delete Format Sort & Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing FH20 EU EV EW EX EY EZ FA FB FC F D FE FF FG FH plane A plane B PLANE A PLANEB year cashflow net cashflow year net cashflow pv factor @9% pv of cfat py of cfat A*C B*C 0 -100 -100 1 -100.00 -132.00 1 28 0.9174 25.69 24.77 2 28 0.8417 23.57 22.73 3 28 0.7722 21.62 20.85 0.7084 19.84 19.13 28 -100 0.6499 -46.80 17.55 30 0.5963 16.70 16.10 30 0.5470 15.32 14.77 30 0.5019 14.05 13.55 30 0.4604 12.89 12.43 30 0.4224 11.83 11.41 NPV : PLANE A 14.70 NPV : PLANE B 41.28 600 vau WNO a b 19 20 21 PLANE B IS BETTER PROJECT AND WILL INCREASE THE VALUE BY $41.28 MILLION EAA NPV/PVIFA @9%/10 YEARS PLANE A 2.29 [14.70/6.41766 PVIFA@9%, 10 YEARS = PLANEB 6.43 [41.28/6.41766 6.41766 22 K M HPR GMAM EAC MACRS LEASE RATIO CASHBUDGET wacc BONDSTEIN indiffEPS EBIT REPLACEMENT STats NPV BETA LEVERED O REPLACEMENT S ferences OPTION TO WAIT MACI BOU 120% Rea 1 6 . B 9 * *0 ENG 28-09-2019