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Davis Airlines must choose between two alternatives planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net
Davis Airlines must choose between two alternatives 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 will produce net cash flows of $25 million per year. The companys cost of capital is 12%. What is the equal annual annuity for each plane? Which plane should Davis choose and why? Show all work.
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