The Airbus A380 is the largest civilian aircraft ever built. It can carry 555 passengers on two decks. Initialproject investments were $13B. Assume that the initial investment was paid on December 31, 2008. Assumethat Airbus will produce 60 aircraft per year for five years. Each aircraft will be sold for $230M and totaloperating costs are 75% of revenues. Assume that revenues and costs occur at year-end with the first revenues(and costs) occurring on December 31, 2009. What is the NPV of the project if Airbus' cost of capital is 11%?Calculate the NPV as of December 31, 2008. Ignore taxes and assume that there are no terminal year cashflows.-$2.799B-$0.249B$0.078B$2.751BO $25.253B

The net present value (NPV) capital budgeting approach is used to determine the current value of…

Answered: The Airbus A380 is the largest civilian…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the initial investment outlay for this project? Group of answer choices $140200 $150,200 $35,000 $130,200
An investment project will involve spending $300,000 at time zero and $450,000 at the end of year one. These investments will generate gross revenues of $420,000 at the end of year one and $660,000 at the end of each year two through eight. A royalty of $42,000 in year one and $66,000 in year two through eight will be incurred along with operating costs of $250,000 in year one and $350,000 at the end of each year two through eight.Calculate the project before-tax cash flow for each year.
Midwest Airlines (MWA) is planning to expand its fleet of jets to replace some old planes and to expand its routes. It has received a proposal to purchase 112 small jets over the next 4 years. What annual net revenue must each jet produce to break even on its operating cost? The analysis should be done by finding the EUAC for the 10-year planned ownership period. MWA has a MARR of 12%, purchases the jet for $22 million, has operating and maintenance costs of $3.2 million the first year, increasing 8% per year, and performs a major maintenance upgrade costing $4.5M at end of Year 5. Assume the plane has a salvage value at end of Year 10 of $13 million.
Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year 1 2 3 4 5 Unit Sales 74, 000 87, 000 106, 250 98, 500 67, 800 Production of the implants will require $1,750,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales increase for the following year. Total fixed costs are $3,700,000 per year, variable production costs are $260 per unit, and the units are priced at $390 each. The equipment needed to begin production has an installed cost of $17,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 25 percent and the required return is 17 percent. MACRS schedule a. What is the NPV of the project? Note: Do not round intermediate…
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the after-tax cash flow from selling the machine at the end of year 3? Group of answer choices $21,935 $30,000 $8,065 $2,600
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $5,300. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $230,000 per year. Cost of goods sold will be 61% of sales. The project will require an increase in net working capital of $5,300. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $20,000. The marginal tax rate is 39% and DSSS Corporation’s appropriate discount rate is 15%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the total cash flow generated in year 3? Group of answer choices $71,719 $74,988 $19,488 $55,501
Your IT company is working on a four-month project for a local mining company. The total planned value of the project (BAC) is $600,000. You are at the end of month three. By the end of month three you scheduled to spend $500,000(PV). The actual cost through this three-month mark is $450,000 (AC). The total work completed at the end of month three is 94 percent. Calculate the earned value, EV=
Planet Airways has been given a 5-year license to start a budget airline between Stardust and Sundown. This service requires two planes which cost $6.5 million each, payable in one year’s time. Each aircraft will make one daily return trip, allowing for 350 flyable days per year. The remaining days of the year will be used to service the planes. The capacity of each plane is 200 passengers and the price per ticket is $550 per return trip. The average passenger load is 80 percent. The carrier’s office building will cost $26 million. Half of this amount is payable now and the balance is to be paid in a year’s time. The aircrafts and the building can be depreciated, for tax purposes, at the rate of 10% per annum of the initial cost. At the end of five years, the salvage values of the planes and the building are $2.6 million per plane and $7.8 million respectively.The operational costs will be $16,000 per one way trip (per flying day) and $6,000 per non-flying day, for each plane. The tax…
Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year 12345 Unit Sales 73,400 86,400 105,500 97,600 67,500 Production of the implants will require $1,600,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales increase for the following year. Total fixed costs are $3,400,000 per year, variable production costs are $257 per unit, and the units are priced at $381 each. The equipment needed to begin production has an installed cost of $16,900,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 22 percent and the required return is 14 percent. MACRS schedule a. What is the NPV of the project? Note: Do not round intermediate…
Can you kindly help show the steps for calculating the Working Capital for a product line capable of producing 1.25 Million units per year, total estimated investment cost for the new line is $25 Million, selling price is fixed for the project life at $125 per unit. Working capital based on a 2.5-month supply of raw materials and 1.5 months of combined inventory (WIP and finished goods)? Variable costs per unit include $35 for materials, $20 for manufacturing, and $18 for labor. There are additional fixed operating and maintenance costs totaling $14.25 Million per year. Salvage value equal to 20% of the purchase price at the end of the 6-year project life. The Federal tax rate is 23% and State tax rate is 8.75%. MARR of 18%. Inflation is expected to increase the variable and fixed costs by 6.4% after the first year. In years 3- 6, inflation is expected to decline by 1.2% each year (year 2 inflation is 6.4%, year 3 is 5.2%, etc.) The project falls under a 7-year MACRS class life. The…
Everest Dew Corporation is planning to construct a new manufacturing plant on which has 60 production lines to run at any point of time to make output. The usage of the line is expected to be 92% all time throughout the years. The initial investment cost for all the lines is RM950,000. It is expected to generate revenue RM8,200 per line in year 1 and 10% increase for every year from year 2 to 6. The operating cost per line is RM1,200 and expected to increase by 10% every year from year 2 to 6. At year 6 it can cease the operation by selling the entire business for RM420,000. The cost of capital is expected to be about 12%. Advice whether the project is acceptable or rejected by using the below methods. A. Accounting Rate of Return (AROR) B. Payback Period Technique (PBP) C. Discounted Payback Period (DPP) D. Net Present Value Technique (NPV) E. Profitability Index (PI) F. What is the importance of the Technique used for analysis on Capital budgeting cost for a project?
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the total cash flow generated in year 3? Group of answer choices $63,875 $73,727 $49,192 $24,535

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS