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Rundle 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 $23,100,000; it will enable the company to increase its annual cash inflow by $6,600,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $30,940,000; it will enable the company to increase annual cash flow by $9,100,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a1. Determine the payback period for each investment alternative. a2. Identify the alternative Rundle should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Rundle should accept Payback Period years years

Rundle 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 $23,100,000; it will enable the company to increase its annual cash inflow by $6,600,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $30,940,000; it will enable the company to increase annual cash flow by $9,100,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a1. Determine the payback period for each investment alternative. a2. Identify the alternative Rundle should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Rundle should accept Payback Period years years

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...
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Rundle 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 $23,100,000; it will enable the company to increase its annual cash inflow by $6,600,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $30,940,000; it will enable the company to increase annual cash flow by $9,100,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a1. Determine the payback period for each investment alternative. a2. Identify the alternative Rundle should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Rundle should accept Payback Period years years
Transcribed Image Text:Rundle 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 $23,100,000; it will enable the company to increase its annual cash inflow by $6,600,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $30,940,000; it will enable the company to increase annual cash flow by $9,100,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a1. Determine the payback period for each investment alternative. a2. Identify the alternative Rundle should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Rundle should accept Payback Period years years
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