Question 1 As is not present in the VLA market and hence wants to enter with its A3xx fleet to compete

with the 7xx and to

The performance characterstics and the design is common across the A family and hence it is more attractive.
A market research forecasted that there will be an increase in the VLA segment due to increased air travel dema
The 4 engine planes are much more safe, comfortable and efficient.
Question 3
Year
Research and Dev
Capital Exp.
Net Working Capital
Required Investment
DCF (r=8%)
Year
No of orders
Orders Delivered
Order value (25%)
Order value (75%)
Cash Flow
Tax (38%)

2000

700
700
USD 9,798.38
2000
22
0
1188
0
1188
451.44

$ millions
2001

2002

2003

2004

1100
0
0
1100

2200
250
150
2600

2200
350
300
2850

2200
350
300
2850

2001

2002
5
0
270
0
270
102.6

2003

2004

5
0
270
0
270
102.6

6
0
324
0
324
123.12

5
0
270
0
270
102.6

Profit
736.56
167.4 167.4
200.88
167.4
DCF (@r=8%; considered only
USD till
10,609.05
2009 when the breakeven quantity is reached)
NPV
22,848.62
PV
32,647.00
Breakeven occurs in the year 2009 when Airbus sells 198 planes
*Assumption: We haven't considered the variable costs involved as no data is given
Inflation is not considered

pete with the 7xx and to open a new market for Super Jumbos.
e it is more attractive.
ncreased air travel demand and growing traffic.

2005

2006

2007

2008

Total

1320
50
200
1570

880
0
50
930

660
0
0
660

440
0
0
440

11000
1000
1000
13000

2005

2006

2007

2008

2009

2010

2011

2012

2013

5
0
270
0
270
102.6

20
20
1080
3240
4320
1641.6

30
30
1620
4860
6480
2462.4

50
30
2700
4860
7560
2872.8

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

167.4

2678.4

4017.6

4687.2

6696

6696

6696

6696

6696

2014

2015

2016

2017

2018

2019

2020

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

50
50
2700
8100
10800
4104

6696

6696

6696

6696

6696

6696

6696

T
r
dt
X
So
sigma

9
0.08
1
9798.381
32647
0.29

u
d
p

1.336427
0.748264
0.569609

32647.00323 43630.35
24428.56

58308.8 77925.49 104141.8 139177.9 186001.2 248577.1

32647 43630.35 58308.8 77925.49 104141.8 139177.9
18279 24428.56
32647 43630.35 58308.8 77925.49
13677.51
18279 24428.56
32647 43630.35
10234.38 13677.51
18279 24428.56
7658.017 10234.38 13677.51
5730.215 7658.017
4287.711

19454.98357 28522.66 41316.17 59123.61 83599.86 116883.5 161788.4

222103
11070.44 16892.55 25428.32 37719.81 55089.27 79179.31 112036.9
5422.808 8735.676 13887.47 21743.14 33446.71 50411.01
2046.309
3541.2 6072.101 10295.4 17211.97
448.2295 849.8599 1611.366 3055.21
0
0
0
0
0
0

Value of flexibility

-3393.64

It is better to commit right away

332205.3
186001.2
104141.8
58308.8
32647
18279
10234.38
5730.215
3208.338

443968.3
248577.1
139177.9
77925.49
43630.35
24428.56
13677.51
7658.017
4287.711
2400.682

302987.7
156338.6
74230.02
28257.56
5792.792
0
0
0
0

411321.3
215930.1
106530.9
45278.48
10983.35
0
0
0
0
0

Question 3
Part a

The first option is to commit to the launch of the basic model of A3XX
Depending upon the demand, the second option is to launch the extended version of the A3XX famil
The third and last option is to wait till you receive the breakeven order(198 order)

Part b

The optimal investment timing calculation

Year
747/777
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
41
1990
62
1991
62
1992
61
1993
55
1994
40
1995
25
1996
25
1997
39
1998
53
1999
47
Total
510
Sigma
0.294042
Z
V
Sigma

350
8.64 (40 aircrafts at a price of $216 mil)
0.294042

W
r
A
B

10
0.08 (inflation 2% and US bond rate 6%)
808961.9 1.89E-18 808961.9 1.24E-06 0.000432653
1.24E-06 5.29E+17 -5.3E+17 -1.9E-18 -6.6113E-16

w*
n

3.68E-05
808961.9

404480

40.50925926

With w* as a very small value, it is advisable to commit right away

ed version of the A3XX family