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. Show a timeline with the after-tax cash flows for each option and calculate the NPV for each plane. Which plane would you recommend and why?
Rini Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $95 million, and...
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...
As part of its continuous fleet renewal strategy, Golden Wings Airlines is considering investing in new aircraft. It has narrowed down its search to two options: the Boeing 787-8 Dreamliner range and the Airbus A350-800 range. The Boeing 787-8 Dreamliner costs $225 million and has an expected economic life of 18 years. The Airbus A350-800 costs $282 million and has an expected economic life of 20 years. Due to differences in capacity and fuel efficiency, the airline expects the annual...
You are considering opening a new plant. The plant will cost
$97.4 million upfront and will take one year to build. After that,
it is expected to produce profits of $28.5 million at the end of
every year of production. The cash flows are expected to last
forever. Calculate the NPV of this investment opportunity if your
cost of capital is 7.5%. Should you make the investment? Calculate
the IRR. Does the IRR rule agree with the NPV rule?
......
High Roller Properties is considering building a new casino at a cost of $10 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be $1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be $3.75 million per year for the...
A company is considering two mutually exclusive expansion projects. Plan A requires a 21 million expenditure on a large scale integrated plant that would provide expected cash flows of $6.40 million per year for 6 years. Plan B requires a $7 million expenditure to build a somewhat less efficient, more labor-intensive plant with expected cash flows of $2.72 million per year for 6 years. The firm’s WACC is 10%. (Timeline required) a. Calculate each project’s NPV and IRR. b. Calculate...
2. A company is considering two mutually exclusive expansion projects. Plan A requires a 21 million expenditure on a large scale integrated plant that would provide expected cash flows of $6.40 million per year for 6 years. Plan B requires a $7 million expenditure to build a somewhat less efficient, more labor-intensive plant with expected cash flows of $2.72 million per year for 6 years. The firm's WACC is 10%. (Timeline required) a. Calculate each project's NPV and IRR. b....
You are considering opening a new plant. The plant will cost S98.1 million upfront and will take one year to build. After that, it is expected to produce profits of $30.9 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.3%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule? Here...
McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each....