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Lett Corporation: Salvage Value of an Aircraft

(Ignore income taxes in this problem) Lett Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 7 years. The company uses a discount rate of 15% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is -$578,739. Management is having difficulty estimating the salvage value of the aircraft. To the nearest whole dollar how large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive?

A) $578,739
B) $86,811
C) $3,858,260
D) $1,539,199

Solution Preview

For an investment to be financially attractive the NPV (net present value) has to be greater than 0.
The NPV ...

Solution Summary

This solution calculates the salvage value of an aircraft.