Suppose that a new high school opens next to a popular fast food restaurant. Explain what will happen to the derived demand for
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Answer:
To make it feasible it will need to operate 7 or more planes.
Explanation:
450,000 maintenance facility
useful life of 15 year
salvage value of 100,000
<u>saving cost per plane:</u>
third party cost - own facility cost = cost savings
35,000 - 25,000 = 10,000
present value of the salvage value: (present value of a lump sum)
salvage $ 100,000
time 15 years
Minimum accepter rate of return: 0.12000
PV 18,269.6261
present worth of the facility:
450,000- 18,268.63 = 431,731.37
Now we determinate the PMT over a 15 years period to know the cost savings per year to justify the facility:
PV 431,731
time 15
rate 0.12
C $ 63,388.630
As each plane cost savings are 10,000
63,388.62 / 10,000 = 6.39
the company will need to operate 7 or more planes.