The president’s executive jet is not fully utilized. You judge that its use by other officers would increase direct oper
Posted: Sat May 07, 2022 7:41 pm
The president’s executive jet is not fully utilized. You judge
that its use by other officers would increase direct operating
costs by only $31,000 a year and would save $100,000 a year in
airline bills. On the other hand, you believe that with the
increased use the company will need to replace the jet at the end
of three years rather than four. A new jet costs $1.21 million and
(at its current low rate of use) has a life of Five years. Assume
that the company does not pay taxes. All cash flows are forecasted
in real terms. The real opportunity cost of capital is 9%.
Calculate the equivalent annual cost of a new
jet. (Do not round intermediate calculations. Enter
your answer in dollars not in millions. Round your answer to 2
decimal places. Enter your answer as a
positive value.)
Calculate the present value of the additional cost of replacing
the jet one year earlier than under its current
usage. (Do not round intermediate calculations. Enter
your answer in dollars not in millions. Round your answer to 2
decimal places.Enter your answer as a positive value.)
Calculate the present value of the savings. (Do not
round intermediate calculations. Enter your answer in dollars not
in millions. Round your answer to 2 decimal places.)
Should you try to persuade the president to allow other officers
to use the plane?
that its use by other officers would increase direct operating
costs by only $31,000 a year and would save $100,000 a year in
airline bills. On the other hand, you believe that with the
increased use the company will need to replace the jet at the end
of three years rather than four. A new jet costs $1.21 million and
(at its current low rate of use) has a life of Five years. Assume
that the company does not pay taxes. All cash flows are forecasted
in real terms. The real opportunity cost of capital is 9%.
Calculate the equivalent annual cost of a new
jet. (Do not round intermediate calculations. Enter
your answer in dollars not in millions. Round your answer to 2
decimal places. Enter your answer as a
positive value.)
Calculate the present value of the additional cost of replacing
the jet one year earlier than under its current
usage. (Do not round intermediate calculations. Enter
your answer in dollars not in millions. Round your answer to 2
decimal places.Enter your answer as a positive value.)
Calculate the present value of the savings. (Do not
round intermediate calculations. Enter your answer in dollars not
in millions. Round your answer to 2 decimal places.)
Should you try to persuade the president to allow other officers
to use the plane?