Which Plane Company to Choose
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Zappe Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 Years, will cost $132 million, and net cash flows of $25 million per year. The company's WACC is 12%. Which plane should the company choose?
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Solution Summary
Basic calculations are performed to pick a plane company given their respective expected lives and net cash flows as well as the company's WACC percentage.
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For plane A, N = 5
FV = 0
annual payment = 30
WACC (I/Y) = 12%
By a financial calculator, or EXCEL (=PV(12%,5,30))
we can ...
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