Question

The management of Byrge Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 6 years. The company uses a discount rate of 20% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is −$474,420. (Ignore income taxes.)

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.

How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Multiple Choice

• $474,420

• $142,640

• $79,070

• $94,884

Answer 1

Annual intangible benefit present value should be equal to $474420
so that project will be accepted.
Annual intangible benefit can be calculated using following formula
Present Value Of An Annuity
= C*[1-(1+i)^-n]/i]
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
$474420= C[ 1-(1+0.2)^-6 /0.2]
474420= C[ 1-(1.2)^-6 /0.2]
474420= C[ (0.6651) ] /0.2
C =$142640
Correct Answer =$142640