Hypothetical Jet Purchase:Assume that FedEx will finance its first four 777F aircraft with Boeing Capital Corporation.Assume that FedEx paid a deposit of $94 million upon signing the sales contract with Boeing's Commercial Aircraft division (the division that manufactures and sells the 777F). The sales contract indicates a price of $940 million for the four aircraft ($235 per aircraft). Upon delivery of the four aircraft, FedEx will execute a note payable to Boeing Capital with the following terms:
1. The face value of the note is $846 million (the $940 million less the $94 million deposit);
2. The interest rate stated in the note is 8% per year, which is the same rate as FedEx's incremental borrowing rate;
3. FedEx will make five installment payments, each on the annual anniversary of the note's inception. These installment payments will simultaneously pay the accrued interest for the year and reduce the principal to zero after the fifth payment.
Assume that on the note's second anniversary the estimated market yield for notes of similar risk as the FedEx note had increased to 10% per year. Using the first of the two hypothetical scenarios from the class presentation assignments, determine the fair market value of the note as of its second anniversary.