Assume the salvage value of the old jets is zero

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CSNY, Inc. is considering increasing the use of its corporate jets by allowing more executives access to them. This change in travel policy is expected to result in an after-tax cost savings of about $0.7 million annually (net of increased operating costs). However, increasing the jets' use will require more frequent replacement. Under the current travel policy, new jets need to be purchased every 15 years, at a cost of $13.5 million. With the increased usage, the jets will have to be replaced every 10 years (also at a cost of $13.5 million.) . The current fleet is six years old, and would have to be replaced six years from now if the travel policy is changed. If the cost of capital is 9%, should CSNY change its travel policy? Assume the salvage value of the old jets is zero and that there are no tax effects. (Find NPV.)

Reference no: EM132054645

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