Washington Air Company is considering the purchase of a helicopter for connectin

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 buit 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 87(Use an interest rate of 14%) More Info More Into The Whirl 2B $107,000 $5,500 S19,000 The ROT 8 $129,000 $10,000 $28,000 Compound Sinking Present Capital First cost Compound Present Factor 0.8772 Fund Factor (AF, ?, N) 1.0000 0.4673 0.2907 0.2032 0.1513 Recovery Factor (AP, i, N) 1.1400 0.6073 0.4307 0.3432 0.2913 Factor (FIA, ?N) Factor (P/A, ?,N) 0.8772 1.6467 2.3216 2.9137 3.4331 Factor i,N) Salvage value Useful life in 1.1400 1.2996 1.4815 1.6890 1.9254 ears 0.6750 0.5921 0.5194 3.4396 4.9211 6.6101 PrintDone 2.1950 2.5023 2.8526 3.2519 3.7072 0.4556 0.3996 0.3506 0.3075 0.2697 3.8887 10.7305 13.2328 16.0853 0.1172 0.0932 0.0756 0.0622 0.0517 4.6389 4.9464 5.2161 0.2572 0.2332 0.2156 0.2022 0.1917 1 Check Answer

Explanation / Answer

Annual cost advantage of selecting ROT-08 = 7304.82 / 4.6389 = 1574.69 or 1575

Year Particulars The Whirl 2B The ROT 8 Incremental Cash Outflow PVF (14%) PVCF 1 First cost 107000 129000 22000 0.8772 19298.25 1 Annual Maintenance 5500 10000 4500 0.8772 3947.368 2 Annual Maintenance 5500 10000 4500 0.7695 3462.604 3 Annual Maintenance 5500 10000 4500 0.6750 3037.372 4 Annual Maintenance 5500 10000 4500 0.5921 2664.361 4 Salvage value -19000 19000 0.5921 11249.53 5 First cost 107000 -107000 0.5194 -55572.4 5 Annual Maintenance 5500 10000 4500 0.5194 2337.159 6 Annual Maintenance 5500 10000 4500 0.4556 2050.139 7 Annual Maintenance 5500 10000 4500 0.3996 1798.368 8 Annual Maintenance 5500 10000 4500 0.3506 1577.516 8 Salvage value -19000 -28000 -9000 0.3506 -3155.03 Savings -7304.82

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