Calculate the npv-discounted payback period and irr

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Aircraft Equipment LLC is considering two investment initiatives for 2016. The first (initiative #1) is to purchase a fleet of six helicopters for $30 million. These can be leased to an existing client under a ten year contract to generate $3 million per year in incremental cash flow. The second (initiative #2) is to purchase a short-haul passenger plane for $100 million. This can also be leased to an existing customer to generate $20 million per year in additional cash flow for the next ten years. After 10 years, the plane can be sold on the secondary market for $30 million. Aircraft leases are paid annually in advance. The firm’s cost of capital is 4%. a. Calculate the NPV, discounted payback period, and IRR for each initiative. b. Which of the initiatives should the Company pursue, and why? c. How does a 10% cost of capital affect your conclusion?

Reference no: EM131552571

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