(Ignore income taxes in this problem.) The management of Enamorado Corporation i

Question

(Ignore income taxes in this problem.) The management of Enamorado Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 5 years. The company uses a discount rate of 17% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is -$160,462. To the nearest whole dollar, how large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive?

Explanation / Answer

Net Present value excluding the intangible benefit: - $ 160,462/-

Useful life :   5 years

Present value of annuity for 5 years @ 17 % :   3.199

The net present value of intangible benefits have to make the investment attractive : $ 160,462/-

Annual intangible benefits : 160,462 / 3.199 = 50,160/-

Answer: D - $ 50, 160/- Annual intangible benefits to make the investment attractive

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