Answered: The management of Byrge Corporation is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The management of Byrge Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 5 years. The company uses a discount rate of 12% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is −$395,450. (Ignore income taxes.)

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.

How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive?

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