Rini Airlines is considering two alternative planes. Plane A hasan expected life of 5 years, will cost $95 million, and will produce after-tax cash flows of$35 million per year. Plane B has a life of 10 years, will cost $112 million, and will produceafter-tax cash flows of $25 million per year. Rini plans to serve the route for 10 years. Thecompany’s WACC is 9%. If Rini needs to purchase a new Plane A, the cost will be $105million, but cash inflows will remain the same. Should Rini acquire Plane A or Plane B?Explain your answer.
Rini Airlines is considering two alternative planes. Plane A hasan expected life of 5 years, will cost $95 million, and will produce after-tax cash flows of$35 million per year. Plane B has a life of 10 years, will cost $112 million, and will produceafter-tax cash flows of $25 million per year. Rini plans to serve the route for 10 years. Thecompany’s WACC is 9%. If Rini needs to purchase a new Plane A, the cost will be $105million, but cash inflows will remain the same. Should Rini acquire Plane A or Plane B?Explain your answer.
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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Rini Airlines is considering two alternative planes. Plane A has
an expected life of 5 years, will cost $95 million, and will produce after-tax cash flows of
$35 million per year. Plane B has a life of 10 years, will cost $112 million, and will produce
after-tax cash flows of $25 million per year. Rini plans to serve the route for 10 years. The
company’s WACC is 9%. If Rini needs to purchase a new Plane A, the cost will be $105
million, but
Explain your answer.
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