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McKesson Inc. just purchased a new executive jet for its president. The jet is currently underutilized, and management is considering allowing other officers to use it. This move would save $119,980 per year in real terms in airline bills. Offsetting this benefit is the notion that the jet will have to be replaced a year sooner than originally planned. If the jet cost $30,200,000 and was originally expected to last 15 years, should management allow other officers to use the jet? The real opportunity cost of is 13%. No, because the present value of saving, $756,172.52, is less than the present value of cost, $844,337.97 Yes, because the present value of saving, $756,172.52, is greater than the present value of cost, $747,201.75. Yes, because the present value of saving, $775,356.21, is greater than the present value of cost, $747,201.75. Yes, because the present value of saving, $756,172.52 is greater than the present value of cost, $321,913.38. Which of the following statement is INCORRECT? IRR (internal rate of return) cannot distinguish between a borrowing project and a lending project. Proper treatment of inflation in NPV calculations involves discounting nominal cash flows by the real discount rate. It is recommended not to calculate equivalent annual cash flows as level of nominal annuities. The reason is that at the higher inflation rate, the project with the longer life is affected more, leading to incorrect rankings. One important point to remember while estimating the cash flows of a project is that we should always estimate cash flows on an incremental basis and on an after-tax basis

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