What is the Profitability Index of the Airbus A380 project? The Airbus A380 is t

Question

What is the Profitability Index of the Airbus A380 project? The Airbus A380 is the largest civilian aircraft ever built. It can carry 555 passengers on two decks. Initial project investments were $13B. Assume that the initial investment was paid on Dec 31, 2008. Assume that Airbus will produce 60 aircraft per year for five years. Each aircraft will be sold for $230M and total operating costs are 75% of revenues. Assume that revenues and costs occur at year-end with the first revenues (and costs) occurring on Dec 31, 2009. Assume that Airbus' cost of capital is 11%. Calculate the Profitability Index as of Dec 31, 2008. Assume that there are no terminal year cash flows. a.0.935 b.0.981 c.0.995 d.1.333 e.1.981

Explanation / Answer

We have to discount the cashflows at 11%

= 3450000000/1.1......................................+3450000000/(1.1)^5

=12750844710.89

Inital Investmen t =

Profitabilit Index =  12750844710.89/

Sales 13800000000 13800000000 13800000000 13800000000 13800000000 Cost 10350000000 10350000000 10350000000 10350000000 10350000000 Pre tax Income 3450000000 3450000000 3450000000 3450000000 3450000000

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