CA6060 An airline wants to buy an aircraft and has narrowed down investment options to two alternative aircraft: Aviation Assignment, LMU, UK

University London Metropolitan University (LMU)
Subject CA6060 aviation Assignment.

ASSIGNMENT

Q1. An airline wants to buy an aircraft and has narrowed down investment options to two alternative aircraft types: the acquisition of a new A330-300 for £75.67m versus a new Boeing 777-200 for £91m. The aircraft have got similar passenger capacity and each will perform the required services between specified or likely future city pairs. Where there is a difference in payload or cargo capacity, this will be reflected in the revenue forecasts.

TASK:

⦁    Complete the investment appraisal cash flow above (NPV, IRR, etc.)

b)  Calculate the payback period for each aircraft 

c)  Calculate the profitability index (please include formula and working). What are the advantages and disadvantages of using this measure as an appraisal tool? 

d)  Draw a graph of NPV against discount rate for rates between 0 to 16% (in steps of 2 i.e. 0,2,4 etc.)

⦁ Using the above information and any other characteristics of these aircraft, which aircraft would you advise the airline to buy and why if the cost of capital is not expected to go over 10%? You should explain with the help of a sensitivity analysis

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