Question
A. PVIFA=(1-(1+0.1)^5/0.1 =3.7908
PV=Annual Operation Cost*PVIFA
Cost of Capital=10 percent
Aircraft A =5.6862(1.5*3.7908) Route X
5.6862(1.5*3.7908) Route Y
Aircraft B
9.477(2.5*3.7908) Route X
7.58(2*3.7908) Route Y
Aircraft C
17.05(4.5*3.7908) Route X
13.267(3.5*3.7908) Route Y
The major aim is to minimize costs
Cost of Aircraft A=5 Aircraft=x
Cost of Aircraft B=10-y
Cost of Aircraft C=10=Z
Therefore, they are on the same route, then,
X+5.68=y=9.477
(Type A)x=Y+3.7908
Cost of Aircraft B and C are equal.
y+7.58=Z+13.26
The given routes will require 10 aircrafts, therefore, 5 aircrafts are required to be scrapped out to pay off 1 million.
Y y+7.58=1+13.26
(Type B)Y=6.68
(Type A)x=10.47
Therefore, only Aircraft A can be picked and the amount is 5.
Aircraft A value-10.47
Aircraft B-6.68
Aircraft C-1
B and C
10 Aircraft A can be chosen.
So, 10A for route X and 10B for route Y.
Due to this,
Aircraft A value-10.47
Aircraft B-6.68
Aircraft C-1
One can also pick 10 Aircraft A and 5B and 5C for route Y.
Therefore,
Aircraft A value-6.68-3.79=2.89
Aircraft B-1 (Due to 5 scrap)
Aircraft C-1(Due to 5 scrap)
On the other hand, one can also pick 10 Aircraft A both for Route X and Y Thus,
Aircraft A=2.89
Aircraft B-1
Aircraft C-1 (Aircraft B and C scrapped)
