(Ignore income taxes in this problem) The management of Nagata Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 6 years. The company uses a discount rate of 13% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is -$326,237. To the nearest whole dollar how large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive?

Question

Quizplus · Accepted Answer

To make the investment attractive, the NPV should be zero or positive. The negative NPV of -$326,237 needs to be offset by the present value of the intangible benefits. Using the present value annuity factor for 6 years at 13%, calculate the annual intangible benefit needed to offset the negative NPV. The correct calculation gives approximately $81,600.

(Ignore Income Taxes in This Problem) the Management of Nagata