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 10% return. (For example, if you bought a 737 for $19.95 million at the start of year 1 and sold it a year later, your total profit would be 18.12 + 3.82 19.95 = $1.99 million, 10% of the purchase cost.) Assume airlines write off their aircraft straight-line over 15 years to a salvage value equal to 20% of the original cost.

Start of Year	Market Value	Cash Flow
1	19.95
2	18.12	3.82
3	17.05	2.88
4	15.91	2.85
5	15.15	2.35
6	14.22	2.45
7	13.62	2.02
8	12.81	2.17
9	12.31	1.78
10	11.59	1.95
11	11.17	1.58
12	10.52	1.77
13	10.17	1.40
14	9.57	1.62
15	9.27	1.26
16	8.72	1.48

a. Calculate economic depreciation, book depreciation, economic return, and book return for each year of the planes life. (Leave no cells blank - be certain to enter "0" 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.)

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.)

b-2. Would steady-state book return overstate or understate true return? multiple choice

• Understate

• Overstate

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