Replacement analysis-replace it with new plane

Assignment Help Financial Management

Reference no: EM131539430

AirExpress 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. AirExpress’s CFO has recently proposed to replace the old plane with a modern Boeing 777 plane that is 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 revenues 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 more years, its salvage value will be $4,000,000. If AirExpress’s MARR is 10% per year, what would you advise the company to do -- keep the old plane or replace it with the new plane? Solve the problem using replacement analysis.

Reference no: EM131539430

Questions Cloud

Think about what is appropriate discount rate : What is the weighted average cost of capital? What is the NPV of the proposed project (Think about what is appropriate discount rate)?

What is the wacc for ampex : Ampex common stock has beta of 1.4 if the risk free rate is 8%, the expected market return is 16% and Ampex has $20 million of 8% debt.

Used as the risk-free rate of return : The return on which one of the following is used as the risk-free rate of return?

What is the exact interest on both offers : The shipping charges are $150 and the interest is 8.75% for both options. What is the exact interest on both offers?

Replacement analysis-replace it with new plane : If AirExpress’s MARR is 10% per year, what would you advise the company to do--keep the old plane or replace it with the new plane?

Define the portfolio return : if rbc's stock goes up to $94 per share and td's stock falls to $72 per share, what is your portfolio return?

What is probability of up movement in risk-neutral world : What is the percentage up movement? What is the percentage down movement? What is the probability of an up movement in a risk-neutral world?

More refined approach to projecting long-term assets : What may be a more refined approach to projecting long-term assets?

How much money will he have at retirement : How much money will he have at retirement if he puts 60% of his money in equities, 30% in bond funds and the rest in money market funds?

User Account

All Pages