Express Airlines Is Considering the Purchase of an Aircraft to Supplement

question 46

Multiple Choice

Express Airlines is considering the purchase of an aircraft to supplement its current fleet. In estimating the impact of adding this aircraft to the fleet, management has developed the following expected cash flows: $$\begin{array} { | c | c | } \hline \text { Year } & \text { Cash Flow } \\\hline 1 & - \$ 1,000 \\\hline 2 & \$ 100,000 \\\hline 3 & \$ 100,000 \\\hline 4 & \$ 100,000 \\\hline 5 & \$ 100,000 \\\hline 6 & \$ 100,000 \\\hline 7 & - \$ 300,000 \\\hline\end{array}$$ If the discount rate is 10%, what is the present value of these estimated flows? (Round to the nearest whole dollar)

• A)$379,080
• B)$224,211
• C)$189,760
• D)$154,869
• E)$199,000

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Definitions:

Expected Number

A statistical term referring to the mean value predicted for a particular variable or event in a probability distribution.

Binomially Distributed

Describes the distribution of two possible outcomes in an experiment or process that is repeated multiple times.

Life Insurance

A contract between an insurer and an insured, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person.

Sales Calls

Direct engagement with potential customers typically over the phone or in person to pitch a product or service.