Essay about Fly by Night Airlines

1. The first step to evaluating the cash flows is to conduct the depreciation tax flow analysis. Depreciation is not a cash flow, but the depreciation expense lows the taxes payable for the company. As a result, the tax effect of deprecation needs to be calculated as a cash flow. There are two depreciable items on the company's balance sheet the building and the equipment. The equipment is known to have a seven year depreciable life, which will be assumed to be straight line. The building is also assumed to be subject to straight line depreciation, this time of forty years. The tax saving reflects the depreciation expense multiplied by the tax rate, which in this case is assumed to be 28%. The following table illustrates the tax effect in future dollars of the depreciation expense:

2) Compare the articles with the contract services account information. Do you notice anything that might lend credence to your theory that Syntech could be a shell company?

| In Year 1, depreciation is $5,000 plus 15% of the asset’s outlayFrom Year 2, depreciation is either * 30% of the asset’s book value; or * if the asset’s book value is less than $6,500, depreciation is the asset’s book value (i.e. asset is depreciated to zero once book value < $6,500)

The book that I decided to read was Night Flying Woman by Ignatia Broker. The tribal identity in the book was Oibwe from the White Earth Band. Ms. Broker started out the book from the present day in Minneapolis where she grew up. There wasn’t much culture to be seen, and the younger generations were getting too lost in the new world. Ms. Broker made sure to mention that she still taught her children the Ojibwe ways, and told them the stories that her grandmother had once told her. Throughout Ignatia Broker’s introductory chapter, we got a sense of the amount of respect she had for you great-great grandmother Oona, or Night Flying Woman.

(2) Accumulated Depreciation- This account accumulates the depreciation over the course of the 12 months. As mentioned above, the appraisal value of PP&E is referred to as “PP&E, net”, which is the original value of $200,000 minus the accumulated depreciation for each month.

The machine will have a depreciation of $140,000 for the first five years; this is determined by dividing the initial investment by five. The old machine will be sold in 2010 for $25,000 which is below the current book value of $36,000. This is why there is a capital gain of $3,850 that will add to the incremental savings plus the depreciation for that year. The new sheeter will be sold at the end of the last year for $120,000 which will be taxed at 35; this is why a cost of $42,000 appears for the last cash flow (Exhibit 1). The NPV is a positive $1,063,567 and the IRR is 36%, this shows that the project will add value to the company along with having a great return. The payback period for the project is 2.45…Using the growth rate of 3%, the sales are projected to be nearly doubled from 2009 with the new sheeter. However, Pitts believes that he would not be surprised to see them increase by 7% or

The present value of all these cash inflows and outflows can be calculated by discounting them at 12.19%. This rate is calculated by assuming that the purchasing power parity holds in this scenario. The company can do the feasibility analysis by looking at both from the subsidiary’s and parent’s perspective by assuming that the purchasing power parity holds. Hence, this rate can be regarded as opportunity cost of investment because it is the second best alternative for the company for investment purposes.

Next, the terminal value at year ten was calculated. The following formula was used to do so: terminal value at year 10 = (FCF at year 11)/(WACC - g). This time we used the long-term growth rate of 7up, which was given by the case as 1% less than the industry rate. This resulted in a terminal value of $848M with its present value calculation being $231M.

ii. Using double- declining method, the first year ending balance of $6,404 is subtracted form the proceeds of the sale netting in a gain of $1,096 on the disposal. Once this is subtracted form the previous years depreciation $4,269, you get a total income statement impact of $3,173.

Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months and no salvage value. (Assume Natalie decides to record a full month’s worth of depreciation, regardless of when the equipment was obtained by the business.)

Depreciation method was changed to straight line method from accelerated method. This policy change increased the income of year 1984 by $ 11 Million.

Depreciation: Depreciation was computed using the straight-line method. The value of the Zinser was $8.25 million and the depreciable life was 10 years, making for an annual depreciation expense of $825,000.

Scenario 1B: Purchase carrier at 0% tax rate. If the boat were to be commissioned in Hong Kong, where there is 0% corporate income tax, the value of the scrap would become $6,719,582 and the NPV after 25 years will be $977,267.

ii. From July 1, 1986 to March 31, 1993 the depreciation was Straight line at 10% for 15 years for a salvage value of 10%.

2. The London based Airline could have verified their passenger list and should have identified Prof. McPherson as a Gold card member and a loyal customer and should have taken any one of these actions based on the situation: