Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The table given below shows how, on average, the market value of a Boeing 737 has varied with its age and the cash flow needed
The table given below shows how, on average, the market value of a Boeing 737 has varied with its age and the cash flow needed in each year to provide a 12% return. (For example, if you bought a 737 for $19.99 million at the start of year 1 and sold it a year later, your total profit would be 18.14 + 4.25 19.99 = $2.40 million, 12% of the purchase cost.) - Assume airlines write off their aircraft straight-line over 15 years to a salvage value equal to 15% of the original cost. Cash Flow Start of Year 1 2 3 4 5 6 7 8 9 Market Value 19.99 18.14 17.09 15.93 15.19 14.24 13.66 12.83 12.35 11.61 11.21 10.54 10.21 9.59 9.31 8.74 4.25 3.23 3.21 2.65 2.77 2.29 2.47 2.02 2.22 1.79 2.02 1.59 1.85 1.43 1.69 10 11 12 13 14 15 16 a. Calculate economic depreciation, book depreciation, economic return, and book return for each year of the plane's life. (Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations. Enter your answers in millions except for percentage values. Round your percentage answers to 1 decimal place and other answers to 2 decimal places.) Start of Year Economic depreciation 0 Book depreciation 0 Economic return (%) Book return (%) 0 1 0 2 0.0 3 4 5 6 7 8 9 10 11 12 13 14 16 b-1. Suppose an airline invested in a fixed number of Boeing 737s each year. Calculate the steady-state book rate of return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Steady-state book rate of return % b-2. Would steady-state book return overstate or understate true return? Understate O Overstate
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started