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The answers are shown i just need the work on how to get the answers. Shao Airlines is considering the purchase of two alternative planes.
The answers are shown i just need the work on how to get the answers.
Shao Airlines is considering the purchase of two alternative 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. Shao plans to serve the route for only 10 years, Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company's cost of capital is 12%. By how much would the value of the company increase if it accepted the better project (plane)? What is the equivalent annual annuity for each plane? ANSWER Extended NPVA = $12.76 million; Extended NPV = $9.26 million. EAAA = $2.26 million; EAAR $1.64 million Step by Step Solution
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