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Zappe Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce after-tax cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce after-tax cash flows of $25 million per year. Zappe plans to serve the route for 10 years. The company's WACC is 12%. If Zappe needs to purchase a new Plane A, the cost will be $105 million, but cash inflows will remain the same. Should Zappe acquire Plane A or Plane B? Explain your answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
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