Rini Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $95 million, and will produce after-tax cash flows of $35 million per year. Plane B has a life of 10 years, will cost $112 million, and will produce after-tax cash flows of $25 million per year. Rini plans to serve the route for 10 years. The company’s WACC is 9%. If Rini needs to purchase a new Plane A, the cost will be $105 million, but cash inflows will remain the same. Should Rini acquire Plane A or Plane B? Explain your answer.
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Rini Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $95 million, and will produce after-tax cash flows of $35 million per year. Plane B has a life of 10 years, will cost $112 million, and will produce af
Rini Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $95 million, and will produce after-tax cash flows of $35 million per year. Plane B has a life of 10 years, will cost $112 million, and will produce after-tax cash flows of $25 million per year. Rini plans to serve the route for 10 years. The company's WACC is 9%. If Rini needs to purchase a new Plane A, the cost will...
Problem 10-16 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 $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 is expected to be...
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...
After Tax Cash Flows Decades Lab plans to purchase a new machine. The cost of the machine is $200,000 and is expected to have a useful life of 5 years. Depreciation is calculated using straight line with no salvage value. Savings in cash operating costs are expected to be $60,000 per year. However, additional working capital of $30,000 is required throughout the life of the machine, but will be recovered at the end of the machine's useful life. At the...
There is a 5-year project that is expected to generate $32 million of cash revenue per year for the first 3 years and then S10 million per year for the next 2 years. The upfront cost to start the project is $90 million, and then it will cost $5 million per year to maintain this project. At the end of the project, the used fixed and working capital, which will be fully depreciated to 0 on the book, can be...
8. A project has an initial cost of $71,950, expected net cash inflows of $9,000 per year for 6 years, and a cost of capital of 10%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places. 9. A project has an initial cost of $54,925, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 11%. What is the project's payback period? Round your...
5. Assuming the free cash flows from synergy will remain level
in perpetuity, estimate the after-tax present value of anticipated
synergy?
Please show all steps.
END OF CHAPTER CASE STUDY: DID UNITED TECHNOLOGIES OVERPAY FOR ROCKWELL COLLINS? Case Study Objectives: To Illustrate • A methodology for determining if an acquirer overpaid for a target firm, • How sensitive discounted cash flow valuation is to changes in key assumptions, and • The limitations of discounted cash flow valuation methods. United Technologies...
1 Use the following after-tax cash flows for project A and B to answer the following question: (Numbers in parentheses are negative cash flows). These two projects are independent. Year Cash Flow of A Cash Flow of B 0 ($2,400) ($4,500) $999 $800 2 $950 3 ($150) $950 4 $910 $800 5 $990 $900 6 ($500) $1980 What is the approximate profitability index for project Aif the required rate of return is 10%? $950 . 1.05 (1.07) . 107 (1.05)...
Exercise 11-1 Payback period computation; uneven cash flows LO P1 Beyer Company is considering the purchase of an asset for $210,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Year1 $64,000 $33,000 62,000 $150,000 $28,000 $337,000 Year2 Year3 Year 4 Year5 Total Net cash flows Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2...
Brief Johnson Air plc is one of the UK’s most established and respected airlines. The company prides itself on its exceptional standard of service and has won awards for comfort and style. The company provides long-haul flights to destinations all over the world and in 2019 the company had a 17% share of an increasingly saturated long-haul market. The company has ambitious growth plans and a recent strategic review has concluded that a new subsidiary, Flynow plc, should be established...