Shao Airlines is considering the purchase of two alternative

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $27 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and the company\'s cost of capital is 11%.

A. By how much would the value of the company increase if it accepted the better project (plane)?

B. What is the equivalent annual annuity for each plane? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.

a) r= 11%, n = 10 years
EAA of A = r(NPV)/(1-(1+r)^-n) = 2.94
b) r= 11%, n = 10 years
EAA of B = r(NPV)/(1-(1+r)^-n) = 4.59

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	PlaneA	A	B	C	D	E	F	G	H	I	J	K
1	Year	0	1	2	3	4	5	6	7	8	9	10
2	Initial Investment	-100
3	Nt cash flows		30	30	30	30	-70	30	30	30	30	30
4	Cost of Capital	11%
	NPV	17.33	NPV(A4,B3:K3)

	Plane B	A	B	C	D	E	F	G	H	I	J	K
1	Year	0	1	2	3	4	5	6	7	8	9	10
2	Initial Investment	-132
3	Nt cash flows		27	27	27	27	27	27	27	27	27	27
4	Cost of Capital	11%
	NPV	27.01	NPV(A4,B3:K3)

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash

Shao Airlines is considering the purchase of two alternative

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