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 13% return. (For example, if you bought a 737 for $19.77 million at the start of year 1 and sold it a year later, your total profit would be 18.03 + 4.31 − 19.77 = $2.57 million, 13% of the purchase cost.) Assume airlines write off their aircraft straight-line over 15 years to a salvage value equal to 10% of the original cost. Start of Year Market Value Cash Flow 1 19.77 2 18.03 4.31 3 16.87 3.50 4 15.82 3.24 5 14.97 2.91 6 14.13 2.79 7 13.44 2.53 8 12.72 2.47 9 12.13 2.24 10 11.50 2.21 11 10.99 2.01 12 10.43 1.99 13 9.99 1.80 14 9.48 1.81 15 9.09 1.62 16 8.63 1.64 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.) 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.)
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 13% return. (For example, if you bought a 737 for $19.77 million at the start of year 1 and sold it a year later, your total profit would be 18.03 + 4.31 − 19.77 = $2.57 million, 13% of the purchase cost.)
Assume airlines write off their aircraft straight-line over 15 years to a salvage value equal to 10% of the original cost.
| Start of Year | Market Value | Cash Flow |
| 1 | 19.77 | |
| 2 | 18.03 | 4.31 |
| 3 | 16.87 | 3.50 |
| 4 | 15.82 | 3.24 |
| 5 | 14.97 | 2.91 |
| 6 | 14.13 | 2.79 |
| 7 | 13.44 | 2.53 |
| 8 | 12.72 | 2.47 |
| 9 | 12.13 | 2.24 |
| 10 | 11.50 | 2.21 |
| 11 | 10.99 | 2.01 |
| 12 | 10.43 | 1.99 |
| 13 | 9.99 | 1.80 |
| 14 | 9.48 | 1.81 |
| 15 | 9.09 | 1.62 |
| 16 | 8.63 | 1.64 |
a. Calculate economic
b-1. Suppose an airline invested in a fixed number of Boeing 737s each year. Calculate the steady-state book
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