1. Given that each of the three corporate transportation alternatives covers a different length of time, what time period should be used to compare these options?
2. What is the annual depreciation expense that Monkey Manufacturing may claim against taxable income under each of the three travel options?
3. Does each of the three travel options contain a different risk level? If so, how should the analyst incorporate the risk differential within the capital budgeting analysis? Be sure to identify the appropriate discount rate necessary to evaluate each alternative in answer, and explain your selection of each particular discount rate.
4. Should the capital budgeting analysis include the forecast inflation rates shown in Table 1? If so, demonstrate how each of these inflation factors will affect the various cash flows in the capital budgeting analysis.
5. What is the net salvage value that Monkey Manufacturing can expect to receive from (a) the aircraft purchase option, and (b) the aircraft time share option?
6. Based on your answer to question 1 through 8, prepare a schedule of corporate cash flows relevant to each of the three travel alternatives, and calculate the present value of the total cost of each option. In developing the cash flows, assume that capital expenditures necessary to fund a change in Monkey Manufacturing travel policy occur in the current period (Year 0) and all operating expenditure begins in the next fiscal year (Year 1).
7. In question 6, should the analyst focus on before tax or after tax cash flows? Why?
8. Is Sebastian Henry's assessment of the risk level of each travel alternative sufficient justification for the financial analysis to apply different discount rates to each of the three travel alternatives? Why or why not?