The table given below shows how, on average, the market value ofa Boeing 737 has varied with its age and the cash flow needed ineach year to provide a 11% return. (For example, if you bought a737 for $19.89 million at the start of year 1 and sold it a yearlater, your total profit would be 18.09 + 3.99 – 19.89 = $2.19million, 11% of the purchase cost.)

Assume airlines write off their aircraft straight-line over 15years to a salvage value equal to 25% of the original cost.

Start of Year	Market Value	Cash Flow
1	19.89
2	18.09	3.99
3	16.99	3.09
4	15.88	2.98
5	15.09	2.54
6	14.19	2.56
7	13.56	2.19
8	12.78	2.27
9	12.25	1.94
10	11.56	2.04
11	11.11	1.72
12	10.49	1.84
13	10.11	1.53
14	9.54	1.68
15	9.21	1.38
16	8.69	1.53

a. Calculate economic depreciation, bookdepreciation, economic return, and book return for each year of theplane’s life. (Leave no cells blank - be certain to enter"0" wherever required. Do not round intermediate calculations.Enter your answers in millions except for percentage values. Roundyour percentage answers to 1 decimal place and other answers to 2decimal places.)

	Start of Year
	1	2	3	4	5	6	7	8
Economic depreciation
Book depreciation
Economic return (%)
Book return (%)

	Start of Year
	9	10	11	12	13	14	15	16
Economic depreciation
Book depreciation
Economic return (%)
Book return (%)

b-1. Suppose an airline invested in a fixednumber of Boeing 737s each year. Calculate the steady-state bookrate of return. (Do not round intermediate calculations.Enter your answer as a percent rounded to 2 decimalplaces.)

Steady-state book rate of return            %  

b-2. Would steady-state book return overstateor understate true return?

	Understates
	Overstates