Question
Company X has a corporate jet that is not fully utilized. You estimate that its use by other officers would increase direct operating costs by
Company X has a corporate jet that is not fully utilized. You estimate that its use by other officers would increase direct operating costs by only $20,000 a year and would save $100,000 a year in airline bills. However, the increase in usage of the jet will make the company to replace the jet at the end of three years rather than four. A new jet (at the current low rate of use) has a life of six years, and the equivalent annual cost (EAC) of $240,000. Assume the company does not pay taxes. The cost of capital is 8%.
Calculate the NPV of allowing other officers to use the jet.
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