Boeing is looking to introduce a new jet, the 797, set to be available for purchase in 5 years. Accounting for all of the uncertainty in the aviation market they have come up with some estimated yearly revenues, displayed in the model below starting when it is purchased. This project will require a $200 million initial investment and profits will not begin until the plane is available for purchase. What is the NPV of this project, and should Boeing build this jet if they have a cost of capital of 14% and the life of the project is 20 years? Annual Revenue Probability $95,000,000 $80,000,000 $65,000,000 $45,000,000 65% 20% 12% 3%
Boeing is looking to introduce a new jet, the 797, set to be available for purchase in 5 years. Accounting for all of the uncertainty in the aviation market they have come up with some estimated yearly revenues, displayed in the model below starting when it is purchased. This project will require a $200 million initial investment and profits will not begin until the plane is available for purchase. What is the NPV of this project, and should Boeing build this jet if they have a cost of capital of 14% and the life of the project is 20 years? Annual Revenue Probability $95,000,000 $80,000,000 $65,000,000 $45,000,000 65% 20% 12% 3%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...
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