Replacement analysis-advice company to do- keep old plane

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Reference no: EM13770237

Air Express bought a used Boeing 757 plane 5 years ago for $35,000,000. At the time the plane was bought, it was estimated that it would have a service life of 10 years and its salvage value at the end of its service life would be $10,000,000. Air Express's CFO has recently proposed to replace the old plane with a modern Boeing 777 plane that expected to last for 15 years. The new plane will cost $75,000,000, will provide $3,000,000 savings in operating and maintenance costs, will increase revenuers by $5,000,000 and will have $20,000,000 salvage value (after 15 years). The seller of the new plane is willing to trade in the old plane for its current fair market value, which is $8,000,000. The CFO estimates that if the old plane is kept for 5 years, its salvage value will be $4,000,000. If Air Express's MARR is 10% per year, what would you advice the company to do- keep the old plane or replace it with the new plane? Using replacement analysis

Reference no: EM13770237

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