1. The GM Crop-Dusting Company is considering
expanding its operations by purchasing an
additional crop-dusting aircraft that would allow it
to spray liquid seaweed based fertilizer onto North
Coast banana plantations. There are two
competing aircraft, A and B, which are capable of
doing the work. The following information is
provided:
飩?Aircraft A would have a useful working life of 10
years, whilst aircraft B, which is smaller, would
have a useful working life of 8 years.
飩?The purchase price of aircraft A is $1,000,000 and
it has no installation costs. Its purchase price
would be depreciated fully over its working life
using straight-line depreciation and it would have
an expected salvage value of $30,000 after 10 years.
飩?The purchase price of aircraft B is $720,000. It
also has no installation costs and its purchase price
would be fully depreciated over its working life
using straight line depreciation. Its expected
salvage value after 8 years is $20,000.
飩?The company pays a tax rate of 30%.
飩?If either aircraft were put into operation, an
increase in working capital of $20,000 would be
required.
飩?If aircraft A is purchased, it is estimated that
annual profit before depreciation and taxes would
increase by $200,000 over the useful life of the
aircraft (i.e. ignoring any interest expense).
飩?If aircraft B is purchased, it is estimated that
annual profit before depreciation and taxes would
increase by $160,000 over the useful life of the
aircraft (i.e. ignoring any interest expense).
(a) For the project involving purchase and operation
of aircraft A, calculate the initial investment,
annual operating cash inflow and terminal net cash
flow for capital budgeting purposes.
(b) For the project involving purchase and operation
of aircraft B, calculate the initial investment,
annual operating cash inflow and terminal net cash
flow for capital budgeting purposes.
(c) Supposing the appropriate cost of capital for both
aircraft purchase projects is 10% per annum,
calculate the net present values for projects A and
B.
(d) Assuming projects A and B are 鈥榦ngoing鈥?projects
which would be replaced by similar aircraft at the
end of their useful lives, determine which project
would be preferred by calculating the annual net
present value of each project.Please solve this for me.?
12
42.Please solve this for me.?
You lost me at THE.
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