The Current Financial State and Appraisal of Barra Airways Essay

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1. Introduction This report will firstly evaluate the usefulness and limitations of the two investment appraisal methods, including the Payback and Net Present Value (NPV). Secondly the report will review historical financial information. Thirdly discuss the financial issues of debt and equity. Finally the report will provide recommendations of how the company’s investment should be finance. Barra Airways are having a board meeting regarding the financials of the company and advice on the new expansion plans. The new expansion plans are to expand into the Eastern European market, with 20 routes to still be established. Barra already offers cheap flight within Western Europe. The airliner does not offer other service such as meals during…show more content…
After all the calculations were completed the Net Present Values for both methods were calculated. 2.2 Procedure Cost as proportion of revenue was calculated by adding all the cost up from the profit and loss account, from all three years and then divided by the number of years. The net income was adjusted so that it is not reduced by depreciation expenses. According to McLany (2006a) Depreciation should not be included because it does not represent a cash inflow. Also maintenance cost was not included, as it will be taken into account in year 9. Interest and other tax are not included either, because it will be taken into account by discounting. The average revenue was taken from the profit and loss account for all three years, from seat sales and ancillary revenue, and then divided ancillary revenue by seat sales to get ancillary revenue and proportion of seat sales. Method one; revenue from seat sales by population was calculated from the assumption, the assumption were; Eastern Europe population* low cost flights per capita* market share* average seat prices. Ancillary revenue was calculated by revenue from seats sales * (f4) ancillary revenues as proportion of seat sales. Method two; revenue from seat sales by the number of seats and load factor, was calculated again from the assumption; (f4) number of passengers per aircraft* (f4) number of fleets* load factor*average seat price* number of one way flights per day*(f4)
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