Determine the payback period for each investment

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Franklin Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $18,870,000; it will enable the company to increase its annual cash inflow by $5,100,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $27,540,000; it will enable the company to increase annual cash flow by $8,100,000 per year. This plane has an eight-year useful life and a zero salvage value.

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Question 1: Determine the payback period for each investment alternative and identify the alternative Franklin should accept if the decision is based on the payback approach. (Round your answers to 1 decimal place.)

Reference no: EM132461916

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