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Homework answers / question archive / Capital Investment Decision ABC Airlines is interested in acquiring a new airplane to service a new route
Capital Investment Decision ABC Airlines is interested in acquiring a new airplane to service a new route. The route would be from Jogjakarta to Merauke. The airplane would fly one round-trip daily except for scheduled maintenance days. There are 15 maintenance days scheduled each year (1 year =365 days). The seating capacity of the airplane is 150. Flights are expected to be fully booked. The average revenue per passenger per flight (one-way) is 5200. Annual operating costs of the airplane follow: Fuel $1,400,000; Flight personnel $500,000; Food and beverages $100,000, maintenance $400,000 and other costs $100,000. Total costs $2,500,000. The airplane will cost $100,000,000 and has an expected life of 20 years. The company requires a 14% return. Assume there are no income taxes. Required: Calculate the NPV for the airplane. Should the company buy it? Explain!
