Question

In an effort to capture the large jet market, Wright Brothers Aviation invested $18 billion developing its 1903A, which is capable of carrying 800 passengers. The plane has a list price of $230 million. In discussing the plane, Wright Brothers Aviation stated that the company would break even when 230 1903As were sold.

  

a.	Assuming the break-even sales figure given is the accounting break-even, what is the cash flow per plane? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole dollar amount, e.g., 32.)

  

Cash flow per plane

$

  

b.

Wright Brothers Aviation promised its shareholders a return of 25 percent on the investment. If sales of the plane continue in perpetuity, how many planes must the company sell per year to deliver on this promise? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

  

Number of planes to be sold

per year

  

c.	Suppose instead that the sales of the 1903A last for only 10 years. How many planes must Wright Brothers Aviation sell per year to deliver the same rate of return? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Number of planes to be sold

per year

Answer 1

investment	18000000000
price per plane	230000000
Break even number of planes	230
A.
BREAK EVEN SALES value = (TOTAL FIXED COST * SALES )/ SALES- VARIABLE COST
52900000000	B2*B3
break even sales total =	52900000000
at break even point we have no profit or no loss
Hence cash inflow per plane = cash outflow per plane
hence cashflow per plane = 0
particulars	$
SALES	52900000000
(-) Variable cost	0	( assumption )
contribution	52900000000
(-) fixed cost	-52900000000
	0
B.	$
investment	18000000000
ROI	25.00%
TOTAL RETURN =	4500000000
price per plane	230000000
return per plane =	57500000	(230000000*25%)
number of planes the company must sell per year =	78.2608695652
	78.26
c.
pv of constant return @25%=	18000000000	(4500000000/0.25)
number of years	10
profit to be earned each year =	1800000000
return per plane =	57500000	(230000000*25%)
number of planes the company must sell per year =	31.3043478261
	31.3