The table given below shows how, on average, the market value of a Boeing 737 has varied with its age and the cash flow needed in each year to provide a 12% return. (For example, if you bought a 737 for $19.83 million at the start of year 1 and sold it a year later, your total profit would be 18.06 + 4.15 – 19.83 = $2.38 million, 12% of the purchase cost.) Assume airlines write off their aircraft straight-line over 15 years to a salvage value equal to 15% of the original cost. Start of Year Market Value Cash Flow 1 19.83 18.06 16.93 2 4.15 3 3.30 15.85 15.03 4 3.11 5 2.72 6. 14.16 2.67 7 13.50 2.36 8. 12.75 2.37 9 12.19 2.09 10 11.53 2.12 11 11.05 1.86 10.46 10.05 12 1.92 13 1.67 9.51 9.15 14 1.75 15 1.50 16 8.66 1.59 a. Calculate economic depreciation, book depreciation, economic return, and book return for each year of the plane's life. (Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations. Enter your answers in millions except for entage values. Round your percentage answers to 1 decimal place and other answers to 2 decimal places.) Economic Book Economic Book return Start of Year depreciation depreciation return (%) (%) 2 3 4 5 6 7 8

The table given below shows how, on average, the market value of a Boeing 737 has varied with its age and the cash flow needed in each year to provide a 12% return. (For example, if you bought a 737 for $19.83 million at the start of year 1 and sold it a year later, your total profit would be 18.06 + 4.15 – 19.83 = $2.38 million, 12% of the purchase cost.) Assume airlines write off their aircraft straight-line over 15 years to a salvage value equal to 15% of the original cost. Start of Year Market Value Cash Flow 1 19.83 18.06 16.93 2 4.15 3 3.30 15.85 15.03 4 3.11 5 2.72 6. 14.16 2.67 7 13.50 2.36 8. 12.75 2.37 9 12.19 2.09 10 11.53 2.12 11 11.05 1.86 10.46 10.05 12 1.92 13 1.67 9.51 9.15 14 1.75 15 1.50 16 8.66 1.59 a. Calculate economic depreciation, book depreciation, economic return, and book return for each year of the plane's life. (Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations. Enter your answers in millions except for entage values. Round your percentage answers to 1 decimal place and other answers to 2 decimal places.) Economic Book Economic Book return Start of Year depreciation depreciation return (%) (%) 2 3 4 5 6 7 8

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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b-1. Suppose an airline invested in a fixed number of Boeing 737s each year. Calculate the steady-state book rate of return. (Do not
round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Steady-state book rate of return
b-2. Would steady-state book return overstate or understate true return?
O Understate
O Overstate

The table given below shows how, on average, the market value of a Boeing 737 has varied with its age and the cash flow needed in
each year to provide a 12% return. (For example, if you bought a 737 for $19.83 million at the start of year 1 and sold it a year later, your
total profit would be 18.06 + 4.15 – 19.83 = $2.38 million, 12% of the purchase cost.)
Assume airlines write off their aircraft straight-line over 15 years to a salvage value equal to 15% of the original cost.
Market Value
19.83
18.06
16.93
Start of Year
Cash Flow
2
4.15
3
3.30
4
15.85
3.11
5
15.03
2.72
2.67
2.36
6
14.16
7
13.50
12.75
2.37
9
12.19
2.09
10
11.53
2.12
11
11.05
1.86
12
10.46
1.92
13
10.05
1.67
14
9.51
1.75
15
9.15
1.50
16
8.66
1.59
a. Calculate economic depreciation, book depreciation, economic return, and book return for each year of the plane's life. (Leave no
cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your answers in millions
except for percentage values. Round your percentage answers to 1 decimal place and other answers to 2 decimal places.)
Economic
Вook
Economic
Book return
Start of Year
depreciation
depreciation
return (%)
(%)
1
2
3
5
6
7
8
9

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