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With so many new aircraft deliveries at American Airlines, the old aircraft must be retired

Accounting Sep 16, 2020

With so many new aircraft deliveries at American Airlines, the old aircraft must be retired. ABC aircraft leasing company is willing to purchase 100 of the MD-80s. They offer AA three payment options: $1 billion today, $150 million a year for the next 10 years (received at the end of each year), or $2 billion at the end of 10 years. You as the new CFO of American Airlines have to decide which option to choose and then explain your decision to the CEO and company investors at the next meeting. Assume that you can earn 10 percent annually. Which alternative should you choose and why? (Hint: your answer should be derived mathematically using financial tools)

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