North Airline Company is considering expanding its territory The company has the

Question

North Airline Company is considering expanding its territory The company has the opportunity to purchase one of t airplanes. The first airplane is expected to cost $12.000,000, It will enable the company to increase its annual cash inflow by $4000.000 per year. The plane is expected to have a useful life of five years and no salvage value The second plane costs $24,000,000, It will enable the company to increase annual cash flow by $6,000,000 per year. This plane has an eight-year useful life and a zero salvage value Required a. Determine the payback period for each investment alternative and identify the alternative North should accept if the decision is based on the payback approach Payback Period years years a-1 Alternative 1 (First plane) Alternative 2 (Second plane) North should accept a-2 Ptex 7° Next e to search

Explanation / Answer

PAyback period for alternative 1 = 12,000,000/4,000,0000 = 3years

Payback period for alternative 2 =24,000,000/6,000,000 = 4 Years

North should accept alternativve 1 as per Payback period.

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