What is the net present value of investing in either plane

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As part of its continuous fleet renewal strategy, Golden Wings Airlines is considering investing in a new aircraft. It has narrowed down its search to two options: the Boeing 787-8 Dreamliner range or the Airbus A350800 range. The Boeing 787-8 Dreamliner costs $225 million and has an expected economic life of 18 years. The Airbus A350-800 costs $282 million and has an expected economic life of 20 years.

Due to the differences in capacity and fuel efficiency, the airline expects the annual net cash inflows from the Boeing 787-8 Dreamliner and Airbus A350-800 to be $75 million and $86 million per year, respectively. The residual values of both planes are expected to be 20% of cost. Golden Wings Airlines' weighted average cost of capital is 15%. Assume no inflation in costs and revenues. You may also ignore taxation.

Question 1 What is the Net Present Value (NPV) of investing in either plane?

Question 2 Comparing the planes based on their equivalent annual annuities (EAA). Which plane must the airline invest in

Reference no: EM132579119

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