Case ID: HKU884     Solution ID: 28878     Words: 1853 Price $ 75

Hong Kong Dragon Airlines Limited B Case Solution

Abstract

Hong Kong Dragon Airlines is thinking about a choice; regardless of whether to purchase or rent the plane motor model V2533. Hong Kong Dragon Airlines has point by point information for both the choices and the investigation of both the choices is under way. This report contains the investigation of the alternatives and suggestions as to which choice ought to be selected to procure the motor. The report begins by giving the money streams for purchasing alternative. The money streams are the assessment balanced figures and are marked down to present qualities utilizing WACC as the markdown rate. The NPV for purchasing choice swings out to be -$3.438037674. After the buy choice, the money streams for the deal and rent back alternative are given. These income figures are additionally balanced for duty and are marked down to present qualities utilizing WACC. The NPV available to be purchased and rent back alternative turns out to be -2.282913505.

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Excel Calculations

 Return Conditions- Flight Hours, Flight Cycles, Life of the Engine, Remaining Life

Senstivity to WACC (Up)- Purchase, NPV, Sale and Lease Back, Cash Flows, PV

Senstivity to WACC (Down)- Purchase, NPV, Sale and Lease Back, Cash Flows, PV

Senstivity to Purchase Price (Up)- Purchase, NPV, Sale and Lease Back, Cash Flows, PV

Senstivity to Purchase Price (Down)- Purchase, NPV, Sale and Lease Back, Cash Flows, PV

Questions Covered

  1. Executive Summary
  2. What are the after-tax cash flows relevant to the purchase option and what discount rate should be used for those cash flows?
  3. What are the after-tax cash flows relevant to the sale-and-leaseback option and what discount rate should be used for those cash flows?
  4. What are the pros and cons of each option given in the case?
  5. Perform sensitivity analysis to identify the key bets/assumptions in your decision.