custom writing services

Need help: Write an email to our support staff support@myprivatementor.com or


whatsapp us

order order
Average score 4.97 out of 5 based on 836 opinions

Airvalue Airways Strategic Planning

Airvalue Airways is a regional carrier whose strategy is to expand gradually as they can identify routes that offer an attractive return on the investment necessary to support successful coverage of the route.  As part of this expansion, the company is planning to buy a new plane in the upcoming fiscal year. The purchasing department has narrowed the choice down to two models.  One is the A220 which is manufactured in Europe.  The other plane is the G435 which is built in the United States.  The two aircraft have similar profiles. However, the locally-built G435 is significantly more expensive to purchase.

The A220 has an expected life of 5 years, will cost $90 million and its use will produce net operating cash inflows of $30 million per year. The G435 has a life of 10 years, will cost $128 million, and its use will produce net operating cash inflows of $25 million per year.  Airvalue plans to serve the route for 10 years. When they need to purchase a new A220 at the end of five years, the cost will be $115 million net after allowing for salvage value of the used plane.  Net operating cash inflows will remain at $30 million throughout the second five years.  At the end of 10 years, salvage value of the G435 and of the second A220 are expected to be about the same at approximately $500,000 each.

As the company’s CFO you are to provide the financial analysis that will be considered by the strategic planning executive committee during evaluation of this expansion alternative.  Your plan is to use a capital budgeting approach to the analysis in order to best assure that the decision will result in maximization of wealth for the company’s stockholders.  You also want to convert the entire committee to the concept that capital budgeting should be used as the main tool for the financial analysis of capital expenditure alternatives.

The company uses the historical difference in returns between the S&P 500 and the Treasury bond rates of 7% as their estimated market risk premium.   The current yield to maturity on a 10-year Treasury bond is 6.2%.  Airvalue Airways’ common-stock equity beta is estimated as 1.40.

Airvalue’s capital structure is 58% common stock, 32% preferred stock and 10% long-term debt.  An 8.8% after tax cost of debt has been determined and the cost of preferred stock is 12%.

Your task is to:

  1. Describe for other members of the strategic planning committee the role that capital budgeting should play in corporate strategic management.
  2. Explain why the NPV and IRR capital budgeting tools are superior to the accounting rate of return and simple payback techniques for determining the attractiveness of capital investment opportunities. 
  3. Use the Capital Asset Pricing Model (CAPM) to identify the cost of common stock.
  4. Calculate the weighted average cost of capital (WACC) for the firm’s existing capital structure.
  5. Calculate the net present value (NPV) for each plane model using the company’s WACC as the hurdle rate.  
  6. Recommend which plane should be purchased and justify your recommendation.  
  7. Discuss the need to manage implementation of the project so that the higher returns can be realized.  Include the strategic management keys to protecting the project from competitive forces that would erode the earning power of the project and jeopardize realization of the projected rate of return on the investment.

To complete this assignment, you must submit a 6-8 page paper that addresses the seven elements of the task as listed above and exhibits your calculations of the cost of common stock, the weighted average cost of capital, and the NPV for each plane along with an explanation of the calculations.

 

The paper must be submitted as a Word document and it must follow APA style guidelines.

NEED TO MAKE AN ORDER? HERE IS HOW IT WORKS

order-process

Need an answer from similar question?Click here and get a solution now

order You have just landed to the most confidential, trustful essay writing service to order the paper from. We have a dedicated team of professional writers who will assist you with any kind of assignment that you have. Your work is handled confidentially with a specific writer who ensures you are satisfied. Be assured of quality, unique and price friendly task delivered in good time when you place an order at our website. banner We have a team of dedicated writers with degrees from all spheres of study. We readily accept all types of essays and we assure you of content that will meet your expectations. Our staff can be reached  via live chat, email or by phone at any given time with prompt response.  

Prices starting at:

High school
Undergrad.(yrs 1-2)
Undergrad.(yrs 3-4)
Master’s
Doctoral
$10 / page
$10/ page
$12/ page
$15 / page
$17/ page

Note: The prices in the table above are applicable to orders completed within 14 days. Kindly see the full price table for more prices..

We urge you to provide as much information as possible to avoid many revisions. Set your deadline, choose your level, give payment information and relax while you track your work. We will deliver your paper on time. Are you in a quagmire and you are unable to complete your assignments? Do you doubt yourself on the quality of the essay you have written? Myprivatementor.com  is here to assist you. We will offer you unmatched quality that is plagiarism free. Place an order at myprivatementor.com  for guaranteed  high grades. order download

we offer gifts to our paper help customersPayment Methods

you can request our services and pay via paypal

we offer gifts to our paper help customersOur Guarantees

  1. Zero plagiarism.
  2. 100% confidentiality.
  3. FREE Reference page
  4. High Quality papers
  5. 24/7 Customer support

Our Testimonials Testimonials

I ordered a 7 page college essay and was delivered on time. Thank you guys I will definitely order again!

9.5
, FL

Our statisticsOur Statistics

  • Orders Completed todate 72387

  • Number of writers 500

  • Satisfied customers 99.7%

  • Returning customers 92.3%

  • Orders placed today 87