An airline is planning to make iPads available on some of its Boeing 747 aircraf

Question

An airline is planning to make iPads available on some of its Boeing 747 aircrafts with in-flight e-mail and Internet service on transoceanic flights. Passengers on these flights will be able to rent iPads from the airline and use them to browse webs or to send and receive e-mail no matter where they are in the skies. A nominal charge of approximately $30 will be instituted for each rental. The airline has estimated the projected cash flows (in millions of dollars) for the systems in the first 10 aircraft as follows: Determine whether this project can be justified at MARR = 15%, and calculate the annual benefit (or loss) that would be generated after installation of the systems.

Explanation / Answer

Answer:

The NPV of the project is positive, hence justified.

The annual benefit = NPV/PVAF for 6 years @15% = $15.51 million/3.7842 = 4.0986 (ans)

in million $s Year Cashflows Discount factors @15% Discounted cashflow 2012 -5 0.8695 -4.3475 2013 1.5 0.7561 1.13415 2014 5 0.6575 3.2875 2015 9 0.5717 5.1453 2016 12 0.4971 5.9652 2017 10 0.4323 4.323 NPV = $15.51

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