Exercise 10-12A (Algo) Determining the payback period LO 10-4 Campbell 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 $19,720,000; it will enable the company to increase its annual cash inflow by $6,800,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $40,020,000; it will enable the company to increase annual cash flow by $8,700,000 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 Campbell 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. Alterative 2 (Second plane) a-2. Campbell should accept Payback Period 2.0 years years alternative 1
Exercise 10-12A (Algo) Determining the payback period LO 10-4 Campbell 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 $19,720,000; it will enable the company to increase its annual cash inflow by $6,800,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $40,020,000; it will enable the company to increase annual cash flow by $8,700,000 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 Campbell 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. Alterative 2 (Second plane) a-2. Campbell should accept Payback Period 2.0 years years alternative 1
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
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Transcribed Image Text:Exercise 10-12A (Algo) Determining the payback period LO 10-4
Campbell 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 $19,720,000; it will enable the company to increase its annual cash inflow by
$6,800,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs
$40,020,000; it will enable the company to increase annual cash flow by $8,700,000 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 Campbell 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. Campbell should accept
Payback Period
2.0 years
years
alternative 1
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