QUESTION 7 (Ignore income taxes in this problem.) Lett Corporation is investigat

Question

QUESTION 7

(Ignore income taxes in this problem.) Lett Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 8 years. The company uses a discount rate of 11% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is $(579,977).

Click here to view Exhibit 8B-1 to determine the appropriate discount factor(s) using tables.

Management is having difficulty estimating the salvage value of the aircraft. How large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive? (Round your final answer to the nearest dollar amount.)

$1,336,353

$63,797

$5,272,518

$579,977

7 points   

QUESTION 8

(Ignore income taxes in this problem.) The management of Londo Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 5 years. The company uses a discount rate of 12% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is $(396,050).

Click here to view Exhibit 8B-2 to determine the appropriate discount factor(s) using tables.

How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round your final answer to the nearest dollar amount.)

$109,861

$47,526

$79,210

$396,050

(Ignore income taxes in this problem.) Lett Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 8 years. The company uses a discount rate of 11% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is $(579,977).

Explanation / Answer

7)

A. $1,336,353

8)

A. $109,861

NPV       (579,977) Discount factor 0.4339 (8 yrs, 11%) 1,336,579 579977/.4339

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