In an effort to capture the large jet market, Hiro Airplanes invested $11.264 billion developing its B490, which is capable of carrying 840 passengers. The plane has a list price of $276.5 million. In discussing the plane, Hiro Airplanes stated that the company would break even when 253 B490s were sold. Assume the break-even sales figure given is the cash flow break-even. Suppose the sales of the B490 last for only 12 years. How many airplanes must Hiro sell per year to provide its shareholders a rate of return of 17 percent on this investment?
A) 50.17
B) 52.48
C) 50.72
D) 53.10
E) 54.40

Question

Quizplus · Accepted Answer

To find the number of airplanes Hiro must sell per year to achieve a 17% rate of return, we need to calculate the annual sales required to achieve the present value of cash flows equal to the initial investment of $11.264 billion. Using the formula for the present value of an annuity, we solve for the annual cash flow that provides a 17% return over 12 years. The correct calculation results in approximately 50.72 airplanes per year.

In an Effort to Capture the Large Jet Market, Hiro