Fanning Airline Company is considering expanding its territory. The company has the opportunity to purchase one of t used airplanes. The first airplane is expected to cost $17,690,000; it will enable the company to increase its annual cas $6,100,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane $30,080,000; it will enable the company to increase annual cash flow by $9,400,000 per year. This plane has an eight- and a zero salvage value. Required a1. Determine the payback period for each investment alternative. a2. Identify the alternative Fanning 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. Fanning should accept Payback Period years years

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Fanning 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 $17,690,000; it will enable the company to increase its annual cash Inflow by
$6,100,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs
$30,080,000; it will enable the company to increase annual cash flow by $9,400,000 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 Fanning 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. Fanning should accept
Payback Period
years
years
Transcribed Image Text:Fanning 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 $17,690,000; it will enable the company to increase its annual cash Inflow by $6,100,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $30,080,000; it will enable the company to increase annual cash flow by $9,400,000 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 Fanning 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. Fanning should accept Payback Period years years
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