A small regional airline has narrowed down the possible choices for its next passenger plane purchase to two alternatives. The Eagle model costs $600,000 and would have an estimated resale value of $100,000 after seven years. The Albatross model has a $750,000 price and would have an estimated resale value of $300,000 after seven years. The annual operating profit from the Eagle would be $150,000. Because of its greater fuel efficiency and slightly larger seating capacity, the Albatross's annual profit would be $190,000. Which plane should the airline purchase if its cost of capital is 6.5%? In current dollars, what is the economic advantage of selecting the preferred alternative over the other?
. A small regional airline has narrowed down the possible choices for its next passenger plane purchase to two alternatives. The Eagle model costs $600,000 and would have an estimated resale value of $100,000 after seven years. The Albatross model has a $750,000 price and would have an estimated resale value of $300,000 after seven years. The annual operating profit from the Eagle would be $150,000. Because of its greater fuel efficiency and slightly larger seating capacity, the Albatross's annual profit would be $190,000. Which plane should the airline purchase if its cost of capital is 6.5%? In current dollars, what is the economic advantage of selecting the preferred alternative over the other?
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