The management of Byrge Corporation is investigating buying a small used aircraf
ID: 2535389 • Letter: T
Question
The management of Byrge 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 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 ?$316,080. (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
Annual intangible benefit = Negative net present value to be offset ÷ Present value factor = 310680/3.170= $98006
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