In 1624 the Native Americans sold Manhattan Island for only $24. But wait, was the figure really that low? If the Native Americans had reinvested that $24 at 7.5 percent annual interest, they would now have over $20 trillion--an amount sufficient to repurchase a good part of New York City.

Now, back to the American Airlines new aircraft financing problem...

With so many new aircraft deliveries at American Airlines, the old aircraft must be retired. ABC aircraft leasing company is willing to purchase 100 of the MD-80s. They offer AA three payment options: $1 billion today, $150 million a year for the next 10 years (received at the end of each year), or $2 billion at the end of 10 years. You as the new CFO of American Airlines have to decide which option to choose and then explain your decision to the CEO and company investors at the next meeting. Assume that you can earn 10 percent annually. Which alternative should you choose and why?  

Answer rating: 100% (QA)

To determine which payment option American Airlines AA should choose we need to calculate the presen... View the full answer