Question

In: Finance

1. An airline is considering the purchase of an Airbus A-320neo which offers improved fuel efficiency...

1. An airline is considering the purchase of an Airbus A-320neo which offers improved fuel efficiency over the previous generation of narrow-body aircraft. The list price of the A-320 is $110 million, but the airline will receive a 30% discount off of list (typical in the airline industry). The finance department estimates the aircraft will generate a positive net cash flow of $7 million in the first year increasing by 5% annually owing to the aircraft’s fuel efficiency. The airline plans to operate the aircraft for 15 years, then sell it in year 16 for an estimated net cash price of $40 million. The airline targets a return on invested capital of 10% annually (use this rate rather than the interest rate to discount future cash flows). Note: This computation is easiest to perform using MS Excel. Develop a discounted cash flow analysis using Excel and present your recommendations. Copy and paste the Excel spreadsheets into your problem set answers (do not just use Excel’s built-in formulas). There are many Excel formats that could be used, including a built-in template. Here is one format that can be used.

Year NCF (Millions $) Discount Factor PV (millions $)
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

Solutions

Expert Solution


Related Solutions

An airline expects to purchase two million gallons of jet fuel in one month and decides...
An airline expects to purchase two million gallons of jet fuel in one month and decides to use heating oil futures for hedging. Suppose that the jet fuel standard deviation is 0.0313, the standard deviation of the stock price is 0.0263, and the correlation between futures and stock prices is  0.928. What is the optimal hedge ratio? - please explain step by step
1. The thermal efficiency of a Rankine power cycle may be improved by i. Superheating the...
1. The thermal efficiency of a Rankine power cycle may be improved by i. Superheating the steam ii. Reheating the steam between high and lower pressure sections of the turbine iii. Regenerative Feedwater Heating iv. Insulating the turbine and decreasing the entropy production during the expansion process v. Incorporating a Rankine cycle power system as part of a cogeneration system a. Items i), ii), and iv) only b. Items i), iii), and v) only c. Items ii), iv) and v)...
1. The thermal efficiency of a Rankine power cycle may be improved by i. Superheating the...
1. The thermal efficiency of a Rankine power cycle may be improved by i. Superheating the steam ii. Reheating the steam between high and lower pressure sections of the turbine iii. Regenerative Feedwater Heating iv. Insulating the turbine and decreasing the entropy production during the expansion process v. Incorporating a Rankine cycle power system as part of a cogeneration system a. Items i), ii), and iv) only b. Items i), iii), and v) only c. Items ii), iv) and v)...
1) ABC Ltd is considering a project which will require the purchase of a machine for...
1) ABC Ltd is considering a project which will require the purchase of a machine for RO1,000,000 at time zero, this machine will have a scrap value at the end of its four - year life: this will be equal to its written - down value. (25% declining balance writing - down allowance on the machine each year). Corporation tax, at a rate of 30% of taxable income, is payable. ABC Ltd's required rate of return is 12%. Operating cash...
Summarizing Bivariate Data (1) The data in table below represent airline fuel cost per gallon (in...
Summarizing Bivariate Data (1) The data in table below represent airline fuel cost per gallon (in dollars) for the US domestic and international carriers with scheduled service by month from July 2014 to December 2014. Month Domestic (x) International (y) July 3 2.84 August 2.98    2.84 September 2.89 2.81 October 2.69 2.67 November 2.58 2.55 December 2.3 2.3 (a) Find the correlation coefficient value r. (b) If we wish to predict international cost using the domestic cost, identify response...
1. Three different makes of cars were tested for fuel efficiency. For each make of car...
1. Three different makes of cars were tested for fuel efficiency. For each make of car eighteen automobiles were randomly selected and subjected to standard driving procedures. Using the data from the following results compute the between treatments estimate of σ² and the within treatments estimate of σ². At the α=.05 level of significance, can the null hypothesis, that all fuel economies are the same, be rejected? Construct the ANOVA table for this data. (Use the formulas to compute the...
Key West Hospital is considering investing in a new CT scanner which has improved images and...
Key West Hospital is considering investing in a new CT scanner which has improved images and requires less use of contrast media for some scans. The cost of the machine is $1.5 million and it will require $300,000 of renovation and installation cost. The machine is capable of doing 1700 scans per year, but it is estimated that the first year demand will be about 1,300 scans. The market suggest that volume will grow about 8% per year until capacity...
Which of the following is an example of signaling? a. Pat is considering the purchase of...
Which of the following is an example of signaling? a. Pat is considering the purchase of a used car. Before making the purchase he has the car checked by an auto mechanic. b. Zach is applying for a new life insurance policy. Before writing the policy, the insurance company requires Zach to be examined by a doctor. c. Denise is applying for a new job. Before hiring her, the firm requires Denise to take a drug test. d. Marcus is...
1. which of the following is not used to measure the efficiency with which a firm...
1. which of the following is not used to measure the efficiency with which a firm uses its assets? current ratio, asset turnover, inventory turnover ratio, Accounts Receivable turnover ratio 2. f a company has received a payment from the customer, then… a) it's cash account will be credited b) accounts receivable would be debited c) it's cash account will be debited d) The cash account debit's will see if the cash account credits 3. Projects with a negative net...
(Also how to solve on ti-84) 1. Fuel efficiency. Computers in some vehicles calculate various quantities...
(Also how to solve on ti-84) 1. Fuel efficiency. Computers in some vehicles calculate various quantities related to performance. One of these is the fuel efficiency, or gas mileage, usually expressed as miles per gallon (mpg). One of the authors of this book conducted an experiment with his 2006 Toyota Highlander Hybrid by randomly recording mpg readings shown on the vehicle computer while the car was set to 60 miles per hour by cruise control. Here are the mpg values...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT