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| March 7, 2019
Write my research paperThe 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: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.By the due date assigned, deliver your assignment to the Submissions Area.Purchase the answer to view it©Copyright 2000-2018. All Rights Reserved. TermPaperChampions.com: The most reliable provider of custom academic papers. Our writers are here to help you complete papers from all disciplines and academic levels . You can always trust us to deliver.
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