Emirates Airlines is considering buying a new A380 aircraft to support the increasing demand for flights...
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Emirates Airlines is considering buying a new A380 aircraft to support the increasing demand for flights between UAE and Japan. The capacity of the A380 is 800 seats and the marketing team estimates that it will be able to offer the route between Tokyo and Dubai route 300 times per year at an occupancy rate of 85%, charging an average ticket price of $980. The cost of the Airbus is $480 million, while Emirates will invest another $18 million for add-on luxury equipment, plus $2 million for shipping. The Airbus will be purchased at the beginning of 2022 and it will be salvaged at the end of 2026 (5 years) for $400 million. Flight costs per seat amount to $50 per hour, while the flight time between the two cities is about 10 hours long. An additional $10 million per year will be required for maintenance. Assume a tax rate f 10%, a straight line depreciation rate of 5% and an opportunity cost of capital of 8%. For simplicity, assume that there is no inflation. Use rounding (Two decimals) to avoid having many decimals in your calculations and make your judgements in consideration to long-term perspective. ii. iii. Calculate the estimated annual ticket sales and costs. (2 marks) Should Emirates buy the new A380? If yes, how much will Emirates earn from the investment? [Note: Ensure that you show all required derivations, as well as the cash flows which you will use to come up with the investment decision.] (20 marks) Will Emirates earn back the initial investment outlay and if yes, how long will it take? (3 marks) Emirates Airlines is considering buying a new A380 aircraft to support the increasing demand for flights between UAE and Japan. The capacity of the A380 is 800 seats and the marketing team estimates that it will be able to offer the route between Tokyo and Dubai route 300 times per year at an occupancy rate of 85%, charging an average ticket price of $980. The cost of the Airbus is $480 million, while Emirates will invest another $18 million for add-on luxury equipment, plus $2 million for shipping. The Airbus will be purchased at the beginning of 2022 and it will be salvaged at the end of 2026 (5 years) for $400 million. Flight costs per seat amount to $50 per hour, while the flight time between the two cities is about 10 hours long. An additional $10 million per year will be required for maintenance. Assume a tax rate f 10%, a straight line depreciation rate of 5% and an opportunity cost of capital of 8%. For simplicity, assume that there is no inflation. Use rounding (Two decimals) to avoid having many decimals in your calculations and make your judgements in consideration to long-term perspective. ii. iii. Calculate the estimated annual ticket sales and costs. (2 marks) Should Emirates buy the new A380? If yes, how much will Emirates earn from the investment? [Note: Ensure that you show all required derivations, as well as the cash flows which you will use to come up with the investment decision.] (20 marks) Will Emirates earn back the initial investment outlay and if yes, how long will it take? (3 marks)
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Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
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