The management of Londo Corporation is investigating buying a small used aircraf
ID: 2655353 • Letter: T
Question
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 14% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is $395,850. (Ignore income taxes in this problem)
$395,850
$115,307
$79,170
$55,419
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 14% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is $395,850. (Ignore income taxes in this problem)
Click here to view Exhibit 13B-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 discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)Explanation / Answer
$115,307 Statement showing computation of PVF Time PVF Working Notes' 1.00 0.877 1/1.14 2.00 0.769 .8772/1.14 3.00 0.675 .7695/1.14 4.00 0.592 .6750/1.14 5.00 0.519 .5921/1.14 3.433 NPV (395,850.00) PVF for 5 Years 3.4330 Minimum annual intangible benefit = -NPV/PVF 115,307.31 Thus annual intangible benefit of minimum $115,307 would make the investment financially Attractive
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