Calculate the present value of the savings

Assignment Help Financial Management

Reference no: EM131866187

Hank Energy’s executive jet is not fully utilized. Hank judges that its use by other officers would increase direct operating costs by only $21,000 a year and would save $100,000 a year in airline bills. On the other hand, Hank believes that with the increased use the company will need to replace the jet at the end of three years rather than four. A new jet costs $1.11 million and (at its current low rate of use) has a life of seven years. Assume that the Hank Energy does not pay taxes. All cash flows are forecasted in real terms. The real opportunity cost of capital is 9%. A. Calculate the equivalent annual cost of a new jet. B. Calculate the present value of the additional cost of replacing the jet one year earlier than under its current usage C. Calculate the present value of the savings. D. Should you try to persuade the president to allow other officers to use the plane?

Reference no: EM131866187

Questions Cloud

What liabilities in tort law arise from the preceding set : What liabilities in tort law arise from the preceding set of facts? Discuss the relevant legal principle(s) and indicate a likely outcome.

Discuss elements of the retailing mix : How would you classify Walmart in terms of its position on the wheel of retailing versus that of an off-price retailer? Develop a chart to highlight the role.

How does value added affect a store competitive position : Discuss the impact of the growing number of dual-income households on (a) nonstore retailing and (b) the retail mix.

Differences between the product and retail life cycles : In retail pricing, retailers often have a maintained markup. Explain how this maintained markup differs from original markup and why it is so important.

Calculate the present value of the savings : Calculate the present value of the additional cost of replacing jet one year earlier than under its current usage. Calculate the present value of the saving.

Ordinary income and separately stated items for the year : What are Dion’s shares of ordinary income and separately stated items for the year?

Calculate the discounted net present value of the proposal : Calculate the discounted Net Present Value of the proposal. Calculate the Internal Rate of Return.

How could a marketer create strategies affecting consumers : Based upon how you have defined memory, explain how forgetting is a part of your view of memory.

Discuss the development of online retailing : The text discusses the development of online retailing in the United States. How does the development of this retailing form agree with the implications.

User Account

All Pages