Question
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
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
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started