Section 1: Capital Investment Appraisal 6 The following scenario relates to Questions 1.6 The directors of Meridian Airways Ltd are currently condering investing in a major project to acquire fleet of 36 airbus aircraft with a capacity to carry out passengers. This is a 5 year project The initial investment will comprise of three investment sections as follows: 1. 395m for the fleet of new aircraft at the end of the project they will be sold for 40m. 2. Additionally, they will require logistical operational premises which will cost E100m at the end of the project a further use will be made of these premises, and the cost transferred to another project. 3. Also they will require 16m of equipment- this is expected to be sold for Elm at the end of the project. The director's policy is to depreciate the aircraft and equipment over the life of the project using straight line depreciation. There is no depreciation on the logical operational premises. They have come up with the following projections of revenue and costs: Revenues Running Costs (excluding depreciation) Em Em 12 15 As 18 160 21 162 Year 1 Year 2 Year 3 Year 4 Year 5 296 331 350 396 386 170 175 190 24 The company, investment criteria when assessing if a project is viable is as follows: 1. The company's cost of capital is 18%. 27 2. The company requires an Accounting Rate of Return of >20%, and a payback period within 3-4 years. 3. They require a positive Net Present Value using an 18% (minimum rate of return), before considering it. LUI, un payuda per 3. They require a positive Net Present Value using an 18% (minimum rate of return) Question 1 (2.5 points) The average profit is (choose the nearest) O531.8 293.2 O 254.4 O 106.4