Reference no: EM132460897

Jordan Airlines is considering two alternatives for maintaining its ?eet of small private jets. The ?rst alternative is to contract with a major airline to perform the necessary maintenance for an annual cost of $1.2 million. The second alternative is for Jordan to construct its own facilities and establish its own maintenance program. The second, "do-it-yourself" alternative will cost less each year (only $500,000), but has large costs to get started-management estimates that it will involve an initial investment of $9 million. The time horizon of the problem is 20 years because a new ?eet of jets will be purchased and the facilities and program will have to be completely revised by that time. Which alternative has the lowest present value of costs, given a 13% discount rate?