Question

Washington Air Company is considering the purchase of a helicopter for connecting services between the​ company's base airport and the new intercounty airport being built about 30 miles away. It is believed that the chopper will be needed only for eight years until the Rapid Transit Connection is phased in. The estimates on two types of helicopters under​ consideration, the Whirl 2B and the ROT​ 8, are given in the table below. Assuming that the Whirl 2B will be available in the future with identical​ costs, what is the annual cost advantage of selecting the ROT​ 8? (Use an interest rate of 15​%.)

   The Whirl 2B   The ROT 8
First cost   $105,000   $109,000
Annual maintenance   $4,500   $9,000
Salvage value   $10,000   $20,000
Useful life in years   4   8

Answer 1