Using the net present value for indicative annual mileage

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For long distance transport of your expensive electronic products your company is leasinga cargo-plane for $150,000 per year. Your annual costs depend on the miles of flights andthey are directly proportional to them at a cost of $5 per mile.

You have received an offer to purchase an airplane

- Initial investment of $1,000,000.

- The lifespan of the airplane is 8 years at which time it can be scrapped for $150,000.

- At 5 years a major maintenance of cost $150,000 will be required. Obviously at the end you do not have to perform maintenance.

- Due to its technological improvements the cost per mile is $4.6.

Evaluate the proposed offer using the net present value for an indicative annual mileage of 120,000 miles.

What is the Internal Rate of Return of the purchase versus the continuation of the lease? Do you recommend it? The discount interest rate (MARR) for the evaluation of the investments is set to 4%.

PLEASE SHOW AND BE SPECIFIC WITH DETAILS.

Reference no: EM131171068

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