NPV and EAC assume that this will involve the replacement of an equivalent engine at...
50.1K
Verified Solution
Link Copied!
Question
Accounting
NPV and EAC assume that this will involve the replacement of an equivalent engine at either five or seven years.
Alternative 1 - Purchase second-hand Engine for $ 178,180
Costs associated with overhaul and reconditioning $155,000
Post operating costs per annum: $625,000
Trade-In Value 10 years $20,000 Trade-In Value 7 years $50,000 Trade-In Value 5 years $80,000
Alternative 2 - Purchase NEW Engine for $ 930,000. (50% of the payment for the engine to be made immediately with the balance due in annual increments of $155,000 in years 1, 2 and 3) and it will cost $25,000 to have the engine integrated (Payment immediately)
Post operating costs per annum: $485,000
Insurance costs will be $70,000 in year 1 but are expected to reduce by 5% each year
Trade-In Value 10 years $180,000 Trade-In Value 7 years $290,000 Trade-In Value 5 years $400,000
Discount Rate 11%
Note: assume that depreciation and taxation do not need to be included in any calculations
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
