Fly-by-Night is an international airline company. Its fleet includes Boeing 757s, 747s, and 737s and McDonnell Douglas MD-83s and MD-80s. Assume that Fly-by-Night made the following expenditures related to these aircraft in 2017:
1. New jet engines were installed on some of the MD-80s at a cost of $25.0 million.
2. The company paid $2.0 million to paint one-eighth of the fleet with the firm's new colors to create a new public image. It intends to paint the remainder of the fleet over the next seven years.
3. Routine maintenance and repairs on various aircraft cost $8.0 million.
4. Noise abatement equipment ("hush kits") was installed on the fleet of 737s to meet FAA maximum allowable noise levels on takeoff. Equipment and installation cost $7.5 million.
5. The avionics systems were replaced on the MD-83s. This will allow the aircraft to be used four more years than originally expected.
6. The existing seats on all 747s were replaced with new, more comfortable seats at a cost of $0.5 million.
7. The jet engines on 50% of the Boeing 737s received a major overhaul at a cost of $5.0 million. As a result, the aircraft will be more fuel efficient.
Required:
1. Which of these expenditures should Fly-by-Night capitalize? Why?
2. How might Fly-by-Night use expenditures like these to manage its earnings?