The management of Byrge Corporation is investigating buying a small usec aircraf
ID: 2527990 • Letter: T
Question
The management of Byrge Corporation is investigating buying a small usec aircraft to use in making airborne inspections of its above-ground pipelines The aircraft would have a useful life of 4 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is -$316,880. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)Explanation / Answer
Present value of investment
$316,880
Life of the project
4 years
Cost of capital
10%
Annuity factor for 4 years @ 10% (B)
3.16987
Minimum recovery of present value of cash flows from the project should be $316,880 (A)
$316,880
Annual cash flows = p.v of cash inflows/Annuity factor (C=A/B)
$99,966.24
Ans
To make investment attractive the annual intangible benefit should be.
$99,966.24
Present value of investment
$316,880
Life of the project
4 years
Cost of capital
10%
Annuity factor for 4 years @ 10% (B)
3.16987
Minimum recovery of present value of cash flows from the project should be $316,880 (A)
$316,880
Annual cash flows = p.v of cash inflows/Annuity factor (C=A/B)
$99,966.24
Ans
To make investment attractive the annual intangible benefit should be.
$99,966.24
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