A Low- Cost Airline Operating in South Africa Is Considering

question 7

Essay

A low- cost airline operating in South Africa is considering adding either Boeing 737- 400 or Boeing 737- 800 to its fleet. The following information is prepared for the economic evaluation. Either aircraft is to be used for 5 years and sold for the estimated salvage value. Assume the double declining balance is used for tax purposes in this country and the airline's before- tax MARR is 6.00% per year and the effective tax rate is 35%. Select a machine on the basis of after- tax present worth analysis. $$\begin{array} { | l | l | l | } \hline \text { Alternative } & 737 - 400 & 737 - 800 \\\hline \text { First costs } & \$ 390,000 & \$ 475,000 \\\hline \text { Annual benefits } & \$ 330,000 & \$ 405,000 \\\hline \text { Salvage value } & \$ 234,000 & \$ 234,000 \\\hline \text { Life, years } & 8 & 10 \\\hline\end{array}$$

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Definitions:

Department of Justice

The federal executive department of the U.S. government responsible for the enforcement of the law and administration of justice.

Federal Trade Commission

A federal agency established to protect consumers and promote competition by preventing anticompetitive, deceptive, and unfair business practices.

Price-Fixing

An illegal agreement among competitors to set prices at a certain level, rather than letting them be determined naturally by supply and demand.

Economic Efficiency

A state in which resources are allocated in a way that maximizes the production of goods and services at the lowest cost, while achieving the highest possible welfare or utility.