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FIN - Your firm is doing a feasibility study to determine the minimum cost of hauling

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Question;Your firm is doing a feasibility study to determine the minimum cost of hauling freight if it purchases a Boeing 777 Freighter at a delivered price of $215 million. The airplane will be used to haul freight between Memphis and Singapore. The 777 Freighter has a Maximum Revenue Payload of 112 tons or 224,000 pounds. It is expected to make 256 one-way trips per year and have a capacity factor of 0.86, thus the average hauling capacity for each trip for the Boeing 777 Freighter will be 188,160 pounds of cargo. Total operating cost per year including cabin crew, maintenance and fuel is estimated to be $65 million per year. Your firm will use 7-year MACRS depreciation, has a 40 percent federal plus state income tax rate and has a weighted average cost of capital (WACC) of 12 percent. Your firm plans to operate the airplane for 7-years. After seven years, the airplane is expected to have a salvage value of $100 million.Applying an absolute cash flow analysis, what is the minimum price that your client can charge per pound of cargo over the 7-year operating life of the airplane assuming 256 one-way trips per year?

 

Paper#48179 | Written in 18-Jul-2015

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