The table given below shows how, on average, the market value of a Boeing 737...
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The table given below shows how, on average, the market value of a Boeing 737 has varied with its age and the cash flow needed in each year to provide a 10% return. (For example, if you bought a 737 or $19.69 million at the start of year 1 and sold it a year later, your total profit would be 17.99 + 3.67 - 19.69 = $1.97 million, 10% of the purchase cost.) Many airlines write off their aircraft straight-line over 15 years to a salvage value equal to 20% of the original cost. ^1 We are grateful to Mike Staunton for providing us with these estimates. a. Calculate economic depreciation, book depreciation, economic return, and book return for each year of the plane's life. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your answers in millions except for percentage values. Round your percentage answers to 1 decimal place and other answers to 2 decimal places.) b-1. Suppose an airline invested in a fixed number of Boeing 737s each year. Calculate the steady state bock rate of return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b-2. Would steady-state book return overstate or understate true return? Understate Overstate
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