Capital budget is used by management to plan expenditures on fixed assets. As a result of the budgets, the company's management usually determines which long-term strategies it can invest in to achieve its growth goals. Capital Budgeting is defined as the process by which a business determines which fixed asset purchases or project investments are acceptable and which are not. Using this approach, each rspose inestment is given a quantiative analysis allowing rational judgment to be made by the

Capital asset management requires a lot of money; therefore, before making such investments, a company must do capital budgeting to ensure that the investment will procure profits for its shareholders.

Companies must undertake initiatives that will lead to a growth in their profitability and boost their shareholder's or investor's wealth. It is of prime importance for a company when dealing with capital budgeting decisions that it determines whether the project will be profitable. Please read the following instructions to solve the case.

In 2021, Fly Away Airline (FAA)'s CEO believes that there is real potential for further growth as the carrier continues its post-pandemic recovery. Like many other carriers, FAA is keen to take advantage of the sudden increase in demand for air travel following COVID-19. The company is struggling with a shortage of pilots; however, it must decide if adding a few planes to its routes will increase profitability.

The company has recruited 5,000 new employees so far this year (2021). These employees will help staff the airports around the United States (U.S.) and a small percentage will be pilots dedicated to routes in the East and West coast of the country. Over 16 million passengers flew with FAA in 2021, and the last count, more than 15,000 employees work for the carrier in the U.S.

The CEO of the company wants to move forward with purchasing 10 new aircrafts to add to the fleet.

Before making such a huge investment, the executive team and the board would like to know which plane to purchase for the expansion. The board of FAA's investment policy states that investments made by the company must break-even within 5 years (acceptable payback period).

There are two planes on the market that meet FAA's requirements: the Boeing 737, and the Airbus A321s:

• The cost for a Boeing 737 is $106 million. This aircraft will provide an incremental increase of $10 million on the cash flow of the company per year for 5 years.
• The Airbus A321s is selling on the market for $119 million. This aircraft will provide an incremental increase of $9.5 million on the cash flow per year for approximately 7 years.Many passengers do not bother looking at the type of plane operating their flight. Lots of people just search by price or schedule, but what happens when two airlines are offering similarly timed flights at the same price? For some fliers, the choice may come down to their preferred airline or airport.

All the big U.S. airlines operate both the Airbus A320 and Boeing 737 families of jets. On many routes, you will even have the choice between an Airbus or Boeing, on the same airline. They are the number one and two best-selling jet liners of all time, and every one of the 17 biggest airlines in North America flies one or both. They come in various models seating from around 100 to more than 200 passengers, covering routes from short hops to long hauls.

The A320 family includes the smaller A318 and A319 and larger A321; the 737s flying today come in models numbered from 737-200 to 737-900. One of the board members makes the case that the Airbus is the best because of the following specifications: wider cabins, less curvature, and finally better placed

windows.

You are asked to help the board decide which aircraft to purchase. Please use one the tools learned in Capital Budgeting to make a recommendation (15pts).

FAA would like to acquire a corporation that would be a strategic acquisition to store parts for their new aircraft. There are two choices; the cost of each choice is $350,000. You cannot spend more than that.

The following are your critical data:

Corporation A

• Revenues are $100,000 a year and will increase at 10% year over year for 5 years
• Expenses are $35,000 a year and will increase by 15% year over year for 5 years
• Depreciation Expense is $4,000 a year Tax rate is 25%

: Discuisasis 10%

Corporation B

Revenues are $120,000 a year and will increase at 7% year over year for 5 years Expenses are $25,000 a year and will increase by 12% year over year for 5 years Depreciation Expense is $7,000 a year Tax rate is 25% Discount rate is 12%

You must compute and analyze the items listed below using a Microsoft Excel spreadsheet. Make sure Make sure that all calculations can be seen in the background of the applicable spreadsheet cells. In other words, leave an audit trail so that others can see how you arrived at your calculations and analysis. A 5-year projected income statement (15pts) Net Present Value (15pts) Internal Rate of Return (15pts) Payback Period (10pts) Profitability Index (10pts)

How would I go about solving this problem when it comes to the income statement. Do I do a project income statement for only the Corporations and just cash flow for the aircrafts?