Exercise 10-12A (Algo) Determining the payback period LO 10-4 Benson Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $10,000,000; it will enable the company to increase its annual cash inflow by $5,000,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $21,000,000; it will enable the company to increase annual cash flow by $7,000,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a1. Determine the payback period for each investment alternative. a2. Identify the alternative Benson should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Benson should accept Payback Period years years
Exercise 10-12A (Algo) Determining the payback period LO 10-4 Benson Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $10,000,000; it will enable the company to increase its annual cash inflow by $5,000,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $21,000,000; it will enable the company to increase annual cash flow by $7,000,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a1. Determine the payback period for each investment alternative. a2. Identify the alternative Benson should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Benson should accept Payback Period years years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 10-12A (Algo) Determining the payback period LO 10-4
Benson Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different
used airplanes. The first airplane is expected to cost $10,000,000; it will enable the company to increase its annual cash inflow by
$5,000,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs
$21,000,000; it will enable the company to increase annual cash flow by $7,000,000 per year. This plane has an eight-year useful life
and a zero salvage value.
Required
a1. Determine the payback period for each investment alternative.
a2. Identify the alternative Benson should accept if the decision is based on the payback approach.
Note: Round your answers to 1 decimal place.
a-1. Alternative 1 (First plane)
a-1. Alternative 2 (Second plane)
a-2. Benson should accept
Payback Period
years
years
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