Delta is considering competing with Southwest flights that connect Boston and New York.

In order to compete, they need to buy two luxury planes. Delta is considering buying either the LuX or the J.K.T. luxury planes.

LuX planes cost $250,000 each and have a seven-year life. Each plane has an operating cost of $1,300 per day (including pilot salary) with expectation of operating 300 days per year,

an annual maintenance cost of $40,000, and can be sold for $110,000 each at the end of year 7.

J.K.T planes cost $320,000 each and have a ten-year life. Each plane has an operating cost of $1,150 per day (including driver salary) with expectation of operating 300 days per year, an annual maintenance cost of $50,000, and can be sold for $170,000 each at the end of year 10.

Both types of plane will be depreciated using straight line depreciation to zero over their lives, and Delta will be able to take advantage of the tax shield associated with this depreciation.

The tax rate is 24% and the required rate of return for Delta is 9.7%. Delta will need to buy new buses when the old ones are sold.

a) What is equivalent annual cost of each option (LuX and J.K.T)?

b) Which planes do you think Delta should buy and why?

Please solve in Excel and post formula text. Thanks!