1. An airline wants to buy an aircraft and has narrowed down investment options to two alternative aircraft types: the acquisition of a new A330-300 for 75.67m versus a new Boeing 777-200 for 91m. The aircraft have got similar passenger capacity and each will perform the required services between specified or likely future city pairs. Where there is a difference in payload or cargo capacity, this will be reflected in the revenue forecasts. A330-300 2023 2024 2025 2026 2027 2028 million Capital cost -75.67 Residual value 46 Cash operating revenues 15 17.67 19 20.33 22.33 Cash operating costs 6 6.33 6.6 6.93 7.27 Cash operating result Net Cash flows PV Cash flows @ 6.5% NPV @ 6.5% IRR % B777-200 2023 2024 2025 2026 2027 2028 million Capital cost -91 Residual value 59.8 Cash operating revenues 16.33 19 22.33 22.33 27 Cash operating costs 5.67 6 6.33 6.73 7.13 Cash operating result Net Cash flows PV Cash flows @ 6.5% NPV @ 6.5% IRR % TASK: a) Complete the investment appraisal cash flow above (NPV, IRR e.t.c) (5 marks) b) Calculate the payback period for each aircraft (4 marks) c) Calculate the profitability index (please include formula and working). What are the advantages and disadvantages of using this measure as an appraisal tool? (3marks) d) Draw a graph of NPV against discount rate for rates between 0 to 16% (in steps of 2 i.e. 0,2,4 etc.) (3 marks) e) Using the above information and any other characteristics of these aircraft, which aircraft would you advise the airline to buy and why if the cost of capital is not expected to go over 10%? You should explain with the help of a sensitivity analysis. (6 marks)

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Here are the answers to the questions a Completed cash flow statements A330300 2023 7567 2024 934 ... View the full answer