Each aircraft is expected to be able to increase MAS's revenues by RM72, 900,000 during the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Each aircraft is expected to be able to increase MAS's revenues by RM72, 900,000 during the first year of its operation. The revenue then is projected to increase by 4% per annum throughout the project's life. Since the aircrafts is the latest model in its class, the company will need to train their pilots and air crews on the aircrafts operational aspect. The training which will cost the company RM250,000 will be conducted in Airbus Training Facility in France only if the aircrafts are purchased. MAS will finance RM300, 000,000 from the total aircraft price through a loan from one of the local banks at 8.4% per annum. At the end of the project's life, each of the aircrafts is expected to be sold as used aircraft at prices tabulated as below: Probabilities 0.20 0.30 0.35 0.15 Aircraft Price (RM) 218,000,240 219,000,420 218,240,240 219,840,460 Two months ago, MAS hired Wong Business Consulting Services Sdn. Bhd. to advise them on the proposal to buy the aircrafts. The consultation cost was RM44, 000 and had already being paid. If the two aircrafts are purchased, MAS will need to rent two hangars owned by Malaysia Airport Bhd. (MAB) for the purpose of aircraft maintenance and repairs. The rental costs for each hangar is RM200, 000 a year. The hangar rental costs will be revised every two years. Based on the discussions with MAB, the hangar rental costs are likely to increase by 2% every time the revision is made. The corporate tax rate is 24% while the company's required rate of return is 14%. A. Based on the information given, (i) calculate the project's total initial outlay. (ii) calculate the annual project cash flows. (iv) calculate the project's terminal cash flow. how terminal value growth assumptions affect a project's overall value with the interactive tool: What is your cost of capital? B. Calculate net present value (NPV) and profitability index (PI) for the project. 2. Malaysian Airlines Bhd (MAS) is considering a proposal to buy two new passenger aircrafts in order to increase their service capacity. The aircrafts that are being considered are from model Airbus MH370. The price for each aircraft is RM279,000,000. Generally, it takes two years for Airbus to construct each MH370 aircraft ordered. The buying process requires MAS to pay down payment, which is 35% of the total aircraft price upon placing the order. The remaining 65% will be paid once the construction process has completed, before the delivery could take place. This is scheduled to be two years from the date where the order is placed. Below is the general information for one Airbus MH370 aircraft: COSTS Maintenance cost Salary: Pilot Air crews Fuel cost Insurance MAS Airlines Bhd. Accounting & Financial Department Aircraft Model - Airbus MH370 TOTAL AMOUNT RM5,760,000 per year RM240,000 per year RM240,000 per year RM16,000,000 per year RM9,600,000 per year REMARKS All costs are projected to increase by 2% per annum throughout the project's Aircrafts will be depreciated using simplified straight line depreciation method down to zero. Each aircraft has 10 years economic life. life. Each aircraft is expected to be able to increase MAS's revenues by RM72, 900,000 during the first year of its operation. The revenue then is projected to increase by 4% per annum throughout the project's life. Since the aircrafts is the latest model in its class, the company will need to train their pilots and air crews on the aircrafts operational aspect. The training which will cost the company RM250,000 will be conducted in Airbus Training Facility in France only if the aircrafts are purchased. MAS will finance RM300, 000,000 from the total aircraft price through a loan from one of the local banks at 8.4% per annum. At the end of the project's life, each of the aircrafts is expected to be sold as used aircraft at prices tabulated as below: Probabilities 0.20 0.30 0.35 0.15 Aircraft Price (RM) 218,000,240 219,000,420 218,240,240 219,840,460 Two months ago, MAS hired Wong Business Consulting Services Sdn. Bhd. to advise them on the proposal to buy the aircrafts. The consultation cost was RM44, 000 and had already being paid. If the two aircrafts are purchased, MAS will need to rent two hangars owned by Malaysia Airport Bhd. (MAB) for the purpose of aircraft maintenance and repairs. The rental costs for each hangar is RM200, 000 a year. The hangar rental costs will be revised every two years. Based on the discussions with MAB, the hangar rental costs are likely to increase by 2% every time the revision is made. The corporate tax rate is 24% while the company's required rate of return is 14%. A. Based on the information given, (i) calculate the project's total initial outlay. (ii) calculate the annual project cash flows. (iv) calculate the project's terminal cash flow. how terminal value growth assumptions affect a project's overall value with the interactive tool: What is your cost of capital? B. Calculate net present value (NPV) and profitability index (PI) for the project. 2. Malaysian Airlines Bhd (MAS) is considering a proposal to buy two new passenger aircrafts in order to increase their service capacity. The aircrafts that are being considered are from model Airbus MH370. The price for each aircraft is RM279,000,000. Generally, it takes two years for Airbus to construct each MH370 aircraft ordered. The buying process requires MAS to pay down payment, which is 35% of the total aircraft price upon placing the order. The remaining 65% will be paid once the construction process has completed, before the delivery could take place. This is scheduled to be two years from the date where the order is placed. Below is the general information for one Airbus MH370 aircraft: COSTS Maintenance cost Salary: Pilot Air crews Fuel cost Insurance MAS Airlines Bhd. Accounting & Financial Department Aircraft Model - Airbus MH370 TOTAL AMOUNT RM5,760,000 per year RM240,000 per year RM240,000 per year RM16,000,000 per year RM9,600,000 per year REMARKS All costs are projected to increase by 2% per annum throughout the project's Aircrafts will be depreciated using simplified straight line depreciation method down to zero. Each aircraft has 10 years economic life. life.
Expert Answer:
Answer rating: 100% (QA)
MAS Aircraft Investment Analysis A Project Cash Flows i Initial Outlay Aircraft purchase price 2 x RM300000000 RM600000000 Training cost RM250000 Cons... View the full answer
Related Book For
Financial Management for Public Health and Not for Profit Organizations
ISBN: 978-0132805667
4th edition
Authors: Steven A. Finkler, Thad Calabrese
Posted Date:
Students also viewed these accounting questions
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
respond to the instruction using the following criteria: Individual Written Case Exercise Respond to the specific questions provide in the case document it will be seven documents. Please make sure...
-
To be more engaged in your community, think of any issues that the youth today are facing, then find books, or studies that will help you in supporting your topic. Write your own observation/s on the...
-
On January 1, 2011, Galactica Corporation had the following stockholders equity accounts. Common Stock ($20 par value, 60,000 shares issued and outstanding) ............... $1,200,000 Paid-in Capital...
-
The account balances for Atlantis Aquatics, Inc., for the year ended December 31, 2010, are presented next in random order: Requirements 1. Prepare Atlantis Aquatics single-step income statement. 2....
-
Dublin Chips is a manufacturer of prototype chips based in Dublin, Ireland. Next year, in 2018, Dublin Chips expects to deliver 615 prototype chips at an average price of $95,000. Dublin Chips'...
-
How do leaders effectively harness the potential of digital technologies, data analytics, and artificial intelligence to drive strategic decision-making, enhance operational agility, and sustain...
-
mask of Let's assume that the SDSU university network (130.191.0.0) uses a subnet 11111111.11111111.11111100.00000000 to assign a unique subnet to each college. How many college subnets can be...
-
Miguel and Juliana Santiago, ages 30 and 28, were recently married in Dallas. Miguel is an electrical engineer with Silicon Systems, a computer component design firm. Juliana has a masters degree in...
-
Who is the typical driver for each type of BPM activity?
-
Alex Evans has a personal automobile policy (PAP) with coverage of $25,000/$50,000 for bodily injury liability, $25,000 for property damage liability, $5,000 for medical payments, and a $500...
-
What other possible factors may influence how you start a BPM activity within your organization?
-
What are the advantages and disadvantages of the bottom-up approach?
-
Read the following discussion and give your response: Privacy for cell phone users has been under scrutiny by the Fair Trade Commission for several years. The five principles the F.T.C. has set forth...
Study smarter with the SolutionInn App