Reference no: EM132742276
Two months ago, MAS hired Wong Business Consulting Services Sdn. Bhd. to advise them on the proposal to buy the aircrafts. The consultation cost was RM44, 000 and had already being paid. If the two aircrafts are purchased, MAS will need to rent two hangars owned by Malaysia Airport Bhd. (MAB) for the purpose of aircraft maintenance and repairs. The rental costs for each hangar is RM200, 000 a year. The hangar rental costs will be revised every two years. Based on the discussions with MAB, the hangar rental costs are likely to increase by 2% every time the revision is made. The corporate tax rate is 24% while the company's required rate of return is 14%.
Problem A. Based on the information given, (i) calculate the project's total initial outlay. (ii) calculate the annual project cash flows. (iii) calculate the project's terminal cash flow. (iv) how terminal value growth assumptions affect a project's overall value with the interactive tool: What is your cost of capital?
Problem B. Calculate net present value (NPV) and profitability index (PI) for the project.
Problem C. Calculate the internal rate of return (IRR) for the project.
Problem D. Should MAS proceed with the project? Explain your answer.
Problem E. Assume there is a delay in the aircrafts' construction process and the delivery could only take place after three years (instead of two years) after the order is placed. Could this project still be a viable project for MAS? Explain your answer.
Problem F. Will Pandemic COVID-19 increase the Cost of Capital in the MAS Airlines Bhd and why? Explain by your strategies.
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