How can this question be solved? The Tree Top Airline (TTA) is a small feeder-fr

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How can this question be solved?

The Tree Top Airline (TTA) is a small feeder-freight line started with very limited capital to serve the independent petroleum operators in the arid Southwest. All of its planes are identical, although they are painted different colors. TTA has been contracting its overhaul work to Alamo Airmotive for $40,000 per plane per year. TTA estimates that, by building a $500,000 maintenance facility with a life of 15 years and a residual (market) value of $100,000 at the end of its life, they could handle their own overhaul at a cost of only $30,000 per plane per year. What is the minimum number of planes per year they must operate to make it economically feasible to build this facility if the MARR is 10% per year?

Explanation / Answer

Maintenance facility    500,000 life              15 residual value    100,000 Depreciation      26,667 Overhaul cost      30,000 Acceptable return 10%      50,000 Total    106,667 overhaul saving (40000-30000)      10,000 Minimum number of planes to operate              11

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