Fly R Us is a budget airline offering low fare tickets to all major domestic routes. The organisation operates three used Boeing 737 planes which were purchased from American Airlines. The planes have

been in use for 3 years. Management is considering purchasing a newer more fuel-efficient Boeing 737 Max. If purchased the new plane would be acquired at the end of year 4.

Fly R Us has 2 options. Continue to operate the old machine or sell the old machine and purchase the new machine. No trade-in was offered by the seller of the new machine.

Required.

1. Should discounted cash flow be used in this decision? Why or why not?
2. How the Net Present Value method, IRR and Payback method help Special people Industries to decide on the decision of retaining the old machine or acquired the new machine?