In an effort to capture the large jet market, Wright Brothers Aviation invested

Question

In an effort to capture the large jet market, Wright Brothers Aviation invested $18 billion developing its 1903A, which is capable of carrying 800 passengers. The plane has a list price of $230 million. In discussing the plane, Wright Brothers Aviation stated that the company would break even when 230 1903As were sold.

Assuming the break-even sales figure given is the accounting break-even, what is the cash flow per plane? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole dollar amount, e.g., 32.)

Wright Brothers Aviation promised its shareholders a return of 25 percent on the investment. If sales of the plane continue in perpetuity, how many planes must the company sell per year to deliver on this promise? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Suppose instead that the sales of the 1903A last for only 10 years. How many planes must Wright Brothers Aviation sell per year to deliver the same rate of return? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

In an effort to capture the large jet market, Wright Brothers Aviation invested $18 billion developing its 1903A, which is capable of carrying 800 passengers. The plane has a list price of $230 million. In discussing the plane, Wright Brothers Aviation stated that the company would break even when 230 1903As were sold.

Explanation / Answer

investment 18000000000 price per plane 230000000 Break even number of planes 230 A. BREAK EVEN SALES value = (TOTAL FIXED COST * SALES )/ SALES- VARIABLE COST 52900000000 B2*B3 break even sales total = 52900000000 at break even point we have no profit or no loss Hence cash inflow per plane = cash outflow per plane hence cashflow per plane = 0 particulars $ SALES 52900000000 (-) Variable cost 0 ( assumption ) contribution 52900000000 (-) fixed cost -52900000000 0 B. $ investment 18000000000 ROI 25.00% TOTAL RETURN = 4500000000 price per plane 230000000 return per plane = 57500000 (230000000*25%) number of planes the company must sell per year = 78.2608695652 78.26 c. pv of constant return @25%= 18000000000 (4500000000/0.25) number of years 10 profit to be earned each year = 1800000000 return per plane = 57500000 (230000000*25%) number of planes the company must sell per year = 31.3043478261 31.3

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