An airline considers purchasing a new airplane. The purchase requires the company to pay $10 million...
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An airline considers purchasing a new airplane. The purchase requires the company to pay $10 million today. Once taken, the new airplane is expected to deliver $15 million in one year. The interest rate is 10% per year. (a) What is the NPV of this project? According to the NPV rule, is it worth investing? (b) Suppose that the company does not have any cash in hand. Instead, it finances the purchase by bor- rowing money from bank and repaying $15 million in one year. What is the resulting cash flow from the project and the bank loan combined? An airline considers purchasing a new airplane. The purchase requires the company to pay $10 million today. Once taken, the new airplane is expected to deliver $15 million in one year. The interest rate is 10% per year. (a) What is the NPV of this project? According to the NPV rule, is it worth investing? (b) Suppose that the company does not have any cash in hand. Instead, it finances the purchase by bor- rowing money from bank and repaying $15 million in one year. What is the resulting cash flow from the project and the bank loan combined?
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Answer rating: 100% (QA)
a To calculate the Net Present Value NPV of the project we need to discount the future cash inflow 1... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
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