An airline is evaluating whether or not to upgrade the engines on their old 757's. there would be an immediate savings of $5,000,000 from selling the old engines to another airline. because of the better fuel economy of the new engines, future savings are estimated to be $1,500,000 per year for the next 15 years. to pay for the new engines, the airline will withdraw money from an investment paying 9% interest per year compounded annually if the new engines cost $17,000,000, would you recommend they purchase the new engines? calculate numerical justification and give a verbal explanation.

the net present value at a rate r = 9% is $91,0.2.61478

Explanation:

From data given the initial investment calculated as

The initial investment is

17,000,000-5,000,000 = 12,000,000

Hence at year 0, the company has a cash flow of

And for the next 15 years the cash flows are:

CF_i= 1,500, 000 for i 1, 2, .., 15

Hence the net present value at a rate r = 9% is:

        = 91,0.2.61478

Since NPV >0 then they should purchase the new engines.

They  should purchase the new engines because it would result in a rate of  return

greater than the rate of 9% of the other investment.

answer; commerce clearing house;

answer; because many corporate watch groups will discover and publicize unethical behavior by suppliers, link it to the american company, and harm its reputation;