1. The managers of Flying Aces Courier Service are analysing a proposed aircraft modification that would...
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1. The managers of Flying Aces Courier Service are analysing a proposed aircraft modification that would save the company an estimated 100,000 gallons of fuel per year. Flying Aces has a large enough fuel storage facility to enable them to buy all their fuel for a year's operations at one time, and they currently have enough fuel on hand for the next year. Thus they won't need to buy more fuel until the end of the first year of the proposed project's life. It would cost $800,000 to have the fleet modified, and the resulting savings would go on for five years. At the current price of $2 per gallon for fuel, the savings would be $200,000 per year. The nominal opportunity cost of capital for the project is 15% compounded annually, and the expected rate of inflation in fuel prices is 10% compounded annually. Calculate the project's net present value. 1. The managers of Flying Aces Courier Service are analysing a proposed aircraft modification that would save the company an estimated 100,000 gallons of fuel per year. Flying Aces has a large enough fuel storage facility to enable them to buy all their fuel for a year's operations at one time, and they currently have enough fuel on hand for the next year. Thus they won't need to buy more fuel until the end of the first year of the proposed project's life. It would cost $800,000 to have the fleet modified, and the resulting savings would go on for five years. At the current price of $2 per gallon for fuel, the savings would be $200,000 per year. The nominal opportunity cost of capital for the project is 15% compounded annually, and the expected rate of inflation in fuel prices is 10% compounded annually. Calculate the project's net present value.
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Financial and Managerial Accounting Using Excel for Success
ISBN: 978-1111993979
1st edition
Authors: James Reeve, Carl S. Warren, Jonathan Duchac
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