Question

In: Finance

KLM Flights are currrently in a financial crisis, and are looking at methods to decrease costs...

KLM Flights are currrently in a financial crisis, and are looking at methods to decrease costs to stay afloat. The company is considering the purchase of a new computerised system that is expected to save the company $76,000 at the end of each year in reduced wages.

The system costs $252,000, plus another $19,000 to be installed. It is expected to last for five years after which it can be sold for $46,000. Operating expenses (such as electricity and maintenance) are $9,000 pa.

a)Determine the annual net cash flows of this investment (ignore the effect of taxes). Enter the information in the following table. Indicate whether cash flows are + or -:

Time 0 1 2 3 4 5
Net Cash Flow

b)Calculate the NPV if the required rate of return is 10% pa.

NPV10% = $

c)Calculate the NPV if the required rate of return is 12% pa.

NPV12% = $

Solutions

Expert Solution

Time 0 1 2 3 4 5
Net Cash Flow -(252,000 + 19,000)= -271,000 76,000-9,000= +$67,000 76,000 - 9,000= +$67,000 76,000-9,000= +$67,000 76,000-9,000= +$67,000 76,000-9,000+46000= +$113,000

b.)Calculation of NPV if Required Rate of Return @10%

Year Cash Flows PVF @10% Discounted Cash Flows
1 67000 0.90909090909 60909.090909
2 67000 0.82644628099 55371.9008263
3 67000 0.7513148009 50338.0916603
4 67000 0.68301345536 45761.9015091
5 113000 0.62092132305 70164.1095046
Total 282545.094408
Total Present Value of Cash Inflow 282545.094408
(-) Present Value of Cash Outflow (271,000)
Net present Value 11,545.094408

Calculation of NPV if Required Rate of Return @12%

Year Cash Flows PVF @12% Discounted Cash Flows
1 67000 0.89285714285 59821.4285709
2 67000 0.79719387754 53411.9897951
3 67000 0.7117802478 47689.2766026
4 67000 0.63551807839 42579.7112521
5 113000 0.5674268557 64119.2346941
Total 267621.640914
Total Present Value of Cash Inflow 267621.640914
(-) Present Value of Cash Outflow (271,000)
Net present Value -3378.359086

Related Solutions

KLM Flights are currrently in a financial crisis, and are looking at methods to decrease costs...
KLM Flights are currrently in a financial crisis, and are looking at methods to decrease costs to stay afloat. The company is considering the purchase of a new computerised system that is expected to save the company $64,000 at the end of each year in reduced wages. The system costs $204,000, plus another $18,000 to be installed. It is expected to last for five years after which it can be sold for $42,000. Operating expenses (such as electricity and maintenance)...
How much has the financial crisis 2020 affected globalization and how is it looking in the...
How much has the financial crisis 2020 affected globalization and how is it looking in the future?
The bank of Canada is concerned about the current COVID-19 financial crisis and decided to decrease...
The bank of Canada is concerned about the current COVID-19 financial crisis and decided to decrease its key interest rate to 0.25%. a) with the aid of an appropriate diagram show the change in money supply b) with your understanding of the monetary transmission mechanism and assuming an open economy how the bank of Canada actions effect the various components of AD and ultimately the equilibrium price level and real GDP ? use the appropriate diagram to help explain your...
-What is the financial crisis? -Dynamics of financial crises, the stages of crisis -2007/9 financial crisis
-What is the financial crisis? -Dynamics of financial crises, the stages of crisis -2007/9 financial crisis
What is meant by a financial crisis? What are sources of a crisis? What is the link between a financial crisis and an economic crisis?
What is meant by a financial crisis? What are sources of a crisis? What is the link between a financial crisis and an economic crisis? What is meant by a contagion effect a financial crisis? How does it spread from one country to another in an open economy?
KLM, Inc. is operating in a competitive market, and faces costs of production as follows: Q...
KLM, Inc. is operating in a competitive market, and faces costs of production as follows: Q FC VC TC AFC AVC ATC MC TR MR 0 0 300 6 300 12 420 18 540 24 840 30 1200 36 2160 a.     Calculate the company’s total costs, average fixed costs, average variable costs, average total costs, marginal costs, total revenue, and marginal revenue at each level of production. b.     The price per unit is $160, the General Manager decides to shut down. Is...
Explain the causes and impact of a financial crisis as seen in the Asian Financial Crisis...
Explain the causes and impact of a financial crisis as seen in the Asian Financial Crisis in 1997 and Global Financial Crisis in 2008. As both Singapore and Hong Kong have good banking regulations and are surplus economies in the balance of payments, how do they suffer from contagion effects of the Asian Financial Crisis and what can they do to minimise such effects?
Listed below are costs​ (in dollars) of roundtrip flights between two cities. All flights involve one...
Listed below are costs​ (in dollars) of roundtrip flights between two cities. All flights involve one stop and a​ two-week stay. Find the coefficient of variation for each of the two sets of​ data, then compare the variation 30 days in advance: 246 247 317 263 269 275 297 1 day in advance: 455 627 554 991 627 1015 566 1. The coefficient of variation for the prices of tickets purchased 30 days in advance is __% (round to one...
Listed below are costs​ (in dollars) of roundtrip flights between two cities. All flights involve one...
Listed below are costs​ (in dollars) of roundtrip flights between two cities. All flights involve one stop and a​ two-week stay. Find the coefficient of variation for each of the two sets of​ data, then compare the variation. 30 days in advance: 266 292 273 252 278 291 314 One day in advance: 455 615 555 964 615 1050 540 1. The coefficient of variation for the prices of tickets purchased 30 days in advance is % 2. The coefficient...
how does the Fed prevent a potential financial crisis?, do you agree with their methods?(explain your...
how does the Fed prevent a potential financial crisis?, do you agree with their methods?(explain your reasoning)
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT