Question
Rini Airlines is considering two alternative planes. Plane A has an expected life of 5 years, has an after-tax cost of $85 million, and will
Rini Airlines is considering two alternative planes. Plane A has an expected life of 5 years, has an after-tax cost of $85 million, and will produce after-tax cash flows of $40 million per year. Plane B has a life of 10 years, has an after-tax cost of$116 million, and will produce after-tax cash flows of $25 million per year. Rini plans to serve the route for 10 years. The companys WACC is 11%. If Rini needs to purchase a new Plane A, the after-tax cost will be $90 million, but cash inflows will remain the same. Should Rini acquire Plane A or Plane B? Explain your answer. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to two decimal places.
Plane A is the better project and will increase the company's value by $ millions.
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