Dirgahayu Airlines Bhd. (Dirgahayu) 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 A380. The price for each aircraft is RM279,000,000. Generally, it takes two years for Airbus to construct each A380 aircraft ordered. The buying process requires Dirgahayu 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 A380 aircraft: Dirgahayu Airlines Bhd. Accounting & Financial Department Aircraft Model - Airbus A380 COSTS TOTAL AMOUNT REMARKS Maintenance cost RM5,760,000 per year Salary: Pilot RM240,000 per year All costs are projected to Air crews RM240,000 per year increase by 2% per annum throughout the project's Fuel cost RM16,000,000 per year life. Insurance RM9,600,000 per year Aircrafts will be depreciated using simplified straight line depreciation method down to zero. Each aircraft has 10 years economic life Each aircraft is expected to be able to increase Dirgahayu'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 Dirgahayu 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 Aircraft Price (RM) 0.20 218,000,240 0.30 219,000,420 0.35 218,240,240 0.15 219,840,460 Two months ago, Dirgahayu hired Hisham 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, Dirgahayu 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, (1) calculate the project's total initial outlay. (ii) calculate the annual project cash flows. (iii) calculate the project's terminal cash flow. B. Calculate net present value (NPV) and Profitability Index (PI) for the project