Amazon is considering using high capacity drones that would make its product deliveries more efficient. For this project, $140,000 would need to be spent right away to buy the required fleet of drones. The drones will be losing their economic value in equal amount each year, fully over their 5-year economic lives. Once the drones' economic life is over, they would all be sold for $10,300 selling price to a new owner, and Amazon would then immediately purchase the same but brand-new drones for the same price as what it paid for the initial fleet of drones. When those drones' life is over, they would again be sold and, again, brand-new ones would be purchased - all for the same prices as for the initial drones, and so on, over and over. Additional information: Amazon expects $10,100 in annual operating costs. . All future cash flows are year-end cash flows. • Amazon pays 24 percent tax rate on all taxable income. • Amazon requires an annual discount rate of 10 percent, and the rate is not expected to change in the future. The equivalent annual cost (EAC) of the drones equals (Singe cost is a cash outflow, a negative dollar amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) EAC -160,400.00
Amazon is considering using high capacity drones that would make its product deliveries more efficient. For this project, $140,000 would need to be spent right away to buy the required fleet of drones. The drones will be losing their economic value in equal amount each year, fully over their 5-year economic lives. Once the drones' economic life is over, they would all be sold for $10,300 selling price to a new owner, and Amazon would then immediately purchase the same but brand-new drones for the same price as what it paid for the initial fleet of drones. When those drones' life is over, they would again be sold and, again, brand-new ones would be purchased - all for the same prices as for the initial drones, and so on, over and over. Additional information: Amazon expects $10,100 in annual operating costs. . All future cash flows are year-end cash flows. • Amazon pays 24 percent tax rate on all taxable income. • Amazon requires an annual discount rate of 10 percent, and the rate is not expected to change in the future. The equivalent annual cost (EAC) of the drones equals (Singe cost is a cash outflow, a negative dollar amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) EAC -160,400.00
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Amazon is considering using high capacity drones that would make its product
deliveries more efficient. For this project, $140,000 would need to be spent right away to
buy the required fleet of drones. The drones will be losing their economic value in equal
amount each year, fully over their 5-year economic lives. Once the drones' economic life
is over, they would all be sold for $10,300 selling price to a new owner, and Amazon
would then immediately purchase the same but brand-new drones for the same price as
what it paid for the initial fleet of drones. When those drones' life is over, they would
again be sold and, again, brand-new ones would be purchased - all for the same prices
as for the initial drones, and so on, over and over.
Additional information:
• Amazon expects $10,100 in annual operating costs.
. All future cash flows are year-end cash flows.
• Amazon pays 24 percent tax rate on all taxable income.
• Amazon requires an annual discount rate of 10 percent, and the rate is not
expected to change in the future.
The equivalent annual cost (EAC) of the drones equals
(Sinte cost is a cash
outflow, a negative dollar amount should be indicated by a minus sign. Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
EAC
$
-160,400.00
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education