(Ignore income taxes in this problem.) The management of Londo Corporation is in
ID: 2493997 • Letter: #
Question
(Ignore income taxes in this problem.) The management of Londo 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 12% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is $(396,050). Click here to view Exhibit 8B-2 to determine the appropriate discount factor(s) using tables. How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round your final answer to the nearest dollar amount.)
Explanation / Answer
Minimum annual cash flows from the intangible benefits need more= Negative net present value to be offset / Present value factor
Minimum annual cash flows from the intangible benefits need more = 396050/ PVIFA(12%,5)
Minimum annual cash flows from the intangible benefits need more = 396050/ 3.605
Minimum annual cash flows from the intangible benefits need more= 109861
Answer
109861
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