Question

The company wants to buy the jet for $ 1275,000 with a total annual fee of $ 195,000, which consists of maintenance, license, and insurance costs.
Hourly operating costs are estimated at $ 275, which includes fuel costs, pilot fees, and so on. The company will use this jet for 140 hours per year for five years. The residual value of the jet aircraft at the end of year 5 is $ 400,000. The MARR
set by the company 15%.
c.) Determine the cost of the Capital Recovery of this jet!
d.) What is the Annual Worth of this decision?

Answer 1

C.

R = 15%

Time = 5 years

Capital recovery cost = -initial investment - PW of annual fee - PW of annual operation cost + PW of the residual value

Capital recovery cost = - 1275000 - 195000*(P/A, 15%, 5) - 140*275*(P/A, 15%, 5) + 400000*(P/F, 15%, 5)

Capital recovery cost = - 1275000 - 195000*3.3522 - 140*275*3.3522 + 400000*.4972

Capital recovery cost = -$1858858.7 or - $1858859

So, capital recovery cost is $1858858.7 or $1858859

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D.

Annual worth of the decision = -1858859*(A/P, 15%, 5)

Annual worth of the decision = -1858859*.2983

Annual worth of the decision = -$554497.64 or -$554498

So, Annual worth of the decision is $554497.64 or $554498 ( as an annual uniform cost)