Bailey Airline Company is considering expanding its territory. The company has t
ID: 2868717 • Letter: B
Question
Bailey Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $13,110,000; it will enable the company to increase its annual cash inflow by $5,700,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $43,120,000; it will enable the company to increase annual cash flow by $9,800,000 per year. This plane has an eight-year useful life and a zero salvage value.
Determine the payback period for each investment alternative. (Round your answers to 1 decimal place.)
Bailey Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $13,110,000; it will enable the company to increase its annual cash inflow by $5,700,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $43,120,000; it will enable the company to increase annual cash flow by $9,800,000 per year. This plane has an eight-year useful life and a zero salvage value.
Explanation / Answer
for 1st plane
Payback period= cost of plane/ cash inflow per year = 13,110,000/5,700,000
=2.3 years
for 2nd plane
pay back = 43,120,000/9,800,000
=4.4 years
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