What is the equivalent annual annuity for each airplane

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Reference no: EM131545643

Cumberland Airlines is considering two alternative airplanes. Airplane A has an expected life of five (5) years, will cost $100 million and will produce net cash flows of $30 million per year. Airplane B has a life of fifteen (15) years, will cost $200 million, and will produce net cash flows of $40 million per year. Cumberland plans to serve the route for 15 years. Inflation of operating costs, airplane costs, and fares is expected to be zero, and the company's cost of capital is 12%. By how much would the value of the company increase if it accepted the better project (airplane)? What is the equivalent annual annuity for each airplane?

Reference no: EM131545643

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