Essay about Fly by Night Airlines

1835 Words8 Pages
Content

1. Introduction page 3
2. Assumption page 3
3. Estimation page 3
4. Accounting data Number of planes page 4 Ticket revenue page 4 Operating Cost page 5 Deprecation page 5 Operating cash flows page 5 NPV page 5
5. Evaluation page 6-7
6. Appendix

Introduction Fly-by-night Airlines is a major commercial air carrier offering passenger service between most large cities in the US. Its profitable
…show more content…
The ticket revenues for three options are estimated as in Appendix A.

Operating Cost Operating cost include fuel cost, maintenance cost, upgrading cost and personnel expenditures. The upgrading costs for PJ-2 and PJ-3 apply to the end of year 4 and year 7 respectively. Estimation of total operating cost is in Appendix B.
Depreciation
PJ-1: Straight line depreciation over 25 years from 15 m to the salvage value of zero. Thus, the annual depreciation is . In year 3, the book value of PJ-1 is . In year 6, the book value of PJ-1 is . The market value in year 3 for PJ-1 is 5 m and thus below the book value and get a tax refund of . Similarly, in year6, the market value is 3 m and receives a tax refund of . Hence the cash inflows for selling the PJ-1 in year 3 and year 6 are 6100000 and 4200000 respectively.
PJ-2: Straight line depreciation over 12 years from 20 m to the salvage value of 8 m. Thus, the annual depreciation is . In year 6, the book value of PJ-2 is . The market value is 18 m which is higher than the book value and thus receives a tax charge of . Hence the cash inflow for selling PJ-2 in year 6 is 17.5 millions.
PJ-3: Straight line depreciation over 9 years from 30 m to the salvage value of 12 m. Thus, the annual depreciation is .
Operating cash flows OCF = which is estimated as

More about Essay about Fly by Night Airlines

Get Access