Rini Airlines is considering two alternative planes. Plane A hasan expected life of 5 years, will cost $95 million, and will produce after-tax cash flows of$35 million per year. Plane B has a life of 10 years, will cost $112 million, and will produceafter-tax cash flows of $25 million per year. Rini plans to serve the route for 10 years. Thecompany’s WACC is 9%. If Rini needs to purchase a new Plane A, the cost will be $105million, but cash inflows will remain the same. Should Rini acquire Plane A or Plane B?Explain your answer.

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.