Efficient light jets (ELJs) are smaller aircraft that
may revolutionize the way people travel by plane.
They cost between $1.5 and $3 million, seat 5 to 7
people, and can fly up to 1100 miles at cruising
speeds approaching 425 mph. Eclipse Aerospace
was founded in 2009, and its sole business is making
ELJs. The company invested $500 million
(time 0) and began taking orders 2 years later. If
the company accepted orders for 2500 planes and
received 10% down (in year 2) on planes having
an average cost of $1.8 million, what rate of return
will the company make over a 10-year planning
period? Assume 500 of the planes are delivered
each year in years 6 through 10 and that the company’s
M&O costs average $10 million per year in
years 1 through 10. (If requested by your instructor,
show both hand and spreadsheet solutions.)